A One-off Wealth Tax to Counter COVID-19 Effects?
Finance minister Rishi Sunak is considering a one-off wealth tax on the rich in order to improve the nation’s finances, which are struggling due to COVID-19 and the resulting disruptions to life and businesses.
Switzerland and France have already taken this route and introduced taxes on the very rich of their countries. However, both countries later withdrew and stopped the program altogether, owing to difficulties in implementation.
The proposal has been put forward by the Commons Treasury Committee’s chair Mel Stride. He said that poor have received the worst of the COVID-19 pandemic and have been affected disproportionately. To counter that, a one-off wealth tax may be the most effective way of salvaging the budget deficit. However, he also cautioned that implementing such a tax structure may not be so easy. He cited France and Switzerland as examples and claimed wealth taxes on an annual basis are extremely complicated and difficult to implement.
Raising taxes on the general public not possible
Since the general public has already had to deal with lost jobs and closed businesses, it doesn’t make any sense to tax them more to cover the budget deficit. The worst-hit are the poor, ethnic minorities, and women. These factors need to be taken into account when formulating government policy, according to Mel Stride. Moreover, Boris Johnson already promised not to raise taxes during his 2019 election campaign. Raising taxes would therefore be politically compromising.
The impact of wealth tax
The proposed wealth tax could help raise about 260 billion pounds by taxing those who owned more than £500,000 at 5%. In order to facilitate payments, the commission proposed that the tax could be paid in installments over a 5 year period. Taxpayers would then have to pay 1% every year for 5 years, based on the initial amount they owed at the first assessment date.
Lord Gus O’Donnell, former head of the civil service, is not so sure about the success of the program. He thinks assuming that 260 billion pounds could be raised within 5 years by levying a one-time tax is too simplistic. Instead, he says that the existing tax structure needs to be improved instead of bringing in a new one.
The finance minister presents the budget on the 3rd of March and it will be interesting to see what measures he announces to help the economy recover quickly.