A world of fairness, equality, and no waste
In the last couple of weeks investors have witnessed two initiatives both locally and internationally: (a) the announcement of the New Zealand clean car government rebate whereby people buying new electric and hybrid vehicles will be eligible for a cash rebate (b) and the announcement by G7 of their intention to pursue a minimum 15% tax for the largest multinationals.
What links these two seemingly unrelated topics is the growing societal desire for a new world of ‘fairness, equality and no waste’, as opposed to a more relaxed philosophy of 1980’s-2000’s, which emphasized ‘choice, freedom and efficiency’.
While different in many respects (including inflationary outcomes), the new world will look more like 1950’s-1960’s rather than 1990s, with a far stronger role allocated to the state and the private sector no longer viewed as offering either efficient or fair outcomes. At this stage, it is not clear what the 15% minimum tax rate will imply, and which corporates does it apply to, nor what earnings does it relate to or what is meant by large multinationals?
However, the basic principles are clear. The days when states thrived mostly by utilizing lower taxation are numbered. While tax is not the only reason for selecting a location, this will undercut some of the appeal of places like Singapore, Hong Kong, Ireland, etc. One way or another, it appears that corporates will be obligated to carry a higher tax burden than in the past. Countries with larger economies and tax rates should benefit. This will be important for some emerging market countries that otherwise experience difficulties in raising local taxation (e.g. India, struggles to collect even 10% of GDP).
In New Zealand we face our own set of challenges and shifting landscape. The government is now incentivising you into a vehicle that they think you should buy, then penalising you when you make a choice that they prefer you did not. The government then re-distributes monies to people who buy cars that they approve, subsidising buyers of electric cars. Some may argue this is a form of state control as per the previous periods alluded to above.
It appears the driving force behind these changes is unstoppable as people increasingly regard tax avoidance and minimization, and inequalities, as being as bad as pollution and environmental degradation. While ratification of the 15% minimum tax will be exceptionally hard, it will happen. While low-tax-paying sectors (like technology) will be in the crossfire, some old-economy sectors propped up by share buybacks will be also impacted. Ultimately, however, new economy, digital and socially accepted assets will deliver the future even though there could be a tax setback initially.