Sunday, September 2, 2007

Even Socialists See the Flat Tax Revolution

The World Socialist Web Site has a column up about how eastern European countries are falling for the capitalist tricks of low taxes to attract "multinational companies and western speculators."

The government of Albania has agreed on a standard tax rate (flat tax) of 10 percent aimed at outdoing its East European rivals and attracting international investors. The government in Tirana is determined to transform the impoverished Balkan state into a haven for multinational companies and western speculators.

From the start of next year, corporate taxes will be reduced from 20 to just 10 percent. The basic rate of income tax, which amounted to 5 percent for average incomes and a maximum of 25 percent for top earners, had already been changed to a uniform rate of 10 percent for all incomes on August 1.

But even this is not enough. In August the head of government, Sali Berisha, announced that the state would make development land available to foreign investors for the symbolic price of one euro. Concessions for socially indispensable services such as health service, education, water and waste disposal, infrastructure, energy and raw material production - are also to be sold off bargain-basement style for one euro.

Should any potential investor be nevertheless deterred by any remaining tariffs, the Albanian government is also ready to step in. A law over foreign trade zones is in preparation and is due to be passed by parliament in October.

Of course, while I would consider these developments to be good things, the author disagrees.

Government representatives repeatedly emphasize that the reform of the tax system is beneficial for the country. The participation of foreign investors in Albania would increase tax revenues, increase transparency, and provide an alternative to businesses, which operate outside of the country’s legal framework and tax structure.

In fact, none of these claims are true. The halving of corporate taxes will inevitably lead to sizable deficits in the national budget, which is already chronically under-financed due to high unemployment and wide-spread tax evasion. The state has already withdrawn financial participation in almost all public services such as health care, education, or infrastructure. Any further decline in the national budget can only worsen the situation.

The main victims of this reform will be those surviving on low incomes. The increase in taxes on low-income earners from 5 to 10 percent means that these taxpayers will finance the tax cuts for companies and high income earners. At the same time those on low wages will be hit hardest by the social consequences of declining tax receipts.

Sixteen years after the introduction of capitalist free-market reforms, the country already resembles an economic and social wasteland. The country’s few profitable national industrial companies have been sold off to the highest bidder and any sort of welfare provision only exists on paper.

It is enough to make one long for the days of plenty everyone enjoyed under the USSR, isn't it?

HT Cato-at-Liberty


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