Hong Kong is nominally now under communist control, yet has a low income tax rate of 16%, a free market economy and limited government. This combined with its free trade port status makes it a reform model for the developing post-communist world.

It consistently tops the Reaganite Heritage Foundation’s Index of Economic Freedom. Judging by reports Vince Cable would love it here – at an off-the-record* post-budget briefing he gave to clients of pollsters ComRes, he lauded Nigel Lawson’s tax reforms and Ronald Reagan’s rolling back of big government. Vince was happily quoting Reagan’s dictum that the most chilling thing you can be told is “We’re from the government and we are here to help you.”

As George Osborne promises to stick to Gordon Brown’s tax and over-spend policies, maybe the most fertile political ground for the LibDems to stake out is to be liberal on economics rather than social democrat. The centre-right German Free Democrats and the Irish Progressive Democrats have been in government more often than not since the late 80s, despite being small liberal parties. Something to think about as we contemplate a hung parliament…

UPDATE : Have just discovered that the Hong Kong finance minister has now abolished all taxes on wine and beer. How refreshingly civilised…

They have also introduced Green tax cuts! Financial Secretary John Tsang also announced last month tax incentives for “Greener” vehicles and a concessionary profits tax reduction for capital expenditure on “Greener” machinery and equipment. Corporate taxes were also reduced this year 1% to 16.5%. Pay attention Osborne at the back.

The Shadow Chief Secretary to the Treasury, Philip Hammond, gave an off-camera briefing ahead of the Budget yesterday lunchtime. Not quite sure how this squares with Dave’s commitment to the “New Politics“ of openness and transparency or his boss George Osborne’s “open source politics 2.0“ which he said would see a Tory government “become more accountable, more transparent and more accessible – and so bridge the growing gap between government and governed.” Having an off camera briefing in the Lobby room seems less than transparent and rather inaccessible to the governed.

Perhaps he has good reason to explain Tory economic policy out of sight, being too timid to put the case for tax relief for the struggling middle classes and reducing state over-spending. The Tories basically accept that because of the dire fiscal position Chancellor Osborne will stick with Gordon Brown’s tax and spending plans. As we tip towards worldwide recession and a global financial crisis the Tories are advocating “tax hikes on alcopops!” and the LibDems “tax cuts for smoothies!” Pathetically unambitious.

Later this morning Osborne will deliver a speech on tax simplification. Guido looks at the economy and sees real trouble ahead, it needs decisive action, not hand-wringing words from politicians about tax simplification. The property market is seized up and consumer confidence is draining away. A massive pro-growth tax package is required now, the earlier the better.

George Bush is pushing a bi-partisan growth package targeting $150 billion in tax relief at individuals and businesses to kick-start private sector spending. That is a stimulus equal to 1% of U.S. GDP.

In the U.K. the equivalent amount would be a £13 billion, a quarter of what the government has used to prop up one insolvent bank to protect a mere 6,000 jobs in Labour’s North East heartlands.

A growth package should include two simple elements of action:

Housing market – stamp duty should be abolished for two years to help resuscitate the property market. House builder shares have slumped as demand expectations have plummeted, this is a relatively cheap way to boost sentiment and help young families in particular.

£500 per taxpayer flat relief – no matter what your level of taxation. This would disproportionately favour those taxpayers on lower incomes, boosting high street spending at a difficult time for retailers. It is simple and easy to implement, would be populist and would let individuals, rather than Whitehall, decide their own spending priorities. The receipt of a cheque for £500 by millions of taxpayers would boost economic growth from the bottom up in a healthy, decentralised way.

Greenspan says today the U.S. is teetering on the edge of recession, Mervyn King has said the same of the U.K., the cost of not acting now will be higher later…

UPDATE : Just read Osborne’s speech and am reminded that it is is already Tory policy to lift the stamp duty threshold for first time buyers to £250,000, taking nine out of ten out of the tax altogether.

Polly Toynbee is wailing in her column this morning about the Chancellor’s U-turn. She reckons it is the “FT Wot Won It” and that Digby is Jones is the Thatcherite vetoing policy in Brown’s Big Tent. On one point Guido is in agreement with her; Labour claim they will take £650 million from non-doms, while the Tories claim they will squeeze them for £3.5 billion. Labour will tax them only after they have lived in Britain for seven years, whereas the Tories will tax them from day one.

So won’t the Tory policy drive more globally mobile wealth creators out of London? Isn’t Osborne’s policy worse for the City and more punitive?

Michael Spencer, the demi-billionaire Tory treasurer and boss of the City money broking powerhouse ICAP, had an article in The Times criticising Brown and Darling’s plans to drive foreign businessman out of London to Monaco.

Guido suspects that Spencer doesn’t think Osborne’s own plans for non-doms are so brilliant either, he implausibly says the Tory version of the policy was “broadly welcomed” when he took City soundings. Broadly welcomed by whom?

Phil Hammond is defending the plans rather meekly, whereas Michael Fallon, a Tory member of the Treasury Select Committee, tells the FT bluntly “Chasing non-doms out of London is a huge mistake … Why do we want to lose all that business to Luxembourg or Dublin or Geneva?”

The US Embassy has made their view known and is lobbying hard to persuade the Treasury to change the wording of its legislation to ensure the charge falls within the scope of the double taxation treaty. The Chancellor’s plans will actually cost the Treasury money, according to a study by the Society of Trust and Estate Practitioners: the £30,000 annual levy will cost £2.1 billion a year as many residents will leave the country. The 116,000 non-doms are mostly not tycoons but bank, hedge fund and private equity staff who bring investment and prosperity. The problem for the Tories with having their policy stolen by Gordon is that they can’t attack his even worse version without highlighting the problems with their own. The Treasury and Osborne should realise that the elasticity in the Laffer Curve applies even more to foreigners.

Digby Jones is a pro-business Thatcherite so going into Gordon’s big tent was always going to involve him holding his nose. In the morning’s FT he says he wasn’t consulted over Labour’s copycat plan to tax foreign businessman, that it is not popular with businessman he meets as he tries to drum up inward investment. Shooting the golden goose is crazy, wealthy foreigners boost the economy. Osborne should know better. Digby knows it, the City knows it, but they don’t have any votes.

Guido has been slow to comment because despite having asked Osborne’s office for copies of the emails which Osborne claims get him off the hook on the non-declaration of third-party financial support for his staff, he hadn’t seen them. Sam Coates’ Red Box got them first.

Spotted in a burger chain on the weekend; two fraught looking parents trying to cajole their kids out of the front door. “Pleeeease,” they begged them, “can we just go?”

The father in particular looked to be on the verge of tears of frustration. George Osborne may be able to best Alastair Darling, but he is no match for his kids…

Via : FirstPost

Last night’s employment of Treasury Civil Servants in the production of a rapid rebuttal Labour party press release by Alastair Darling has not go unnoticed by George Osborne. He has written a complaint dressed up as a query;

Alastair Darling had a reputation as a safe pair of hands, but the more you see of him under pressure, the less safe he seems.

At the start of the Northern Rock crisis he at first claimed all was well, then dithered, waffled and eventually promised the government would guarantee everything. A promise he has now gone back on – as Northern Rock shares fell even more today.

Unsettled by the finesse of Osborne’s tax policy announcements he seems to have completely lost the plot yesterday, claiming the Tory figures don’t add up whilst simultaneously acknowledging they don’t know how many non-doms there are or what income they have. But the Labour party press release is even more extraordinary:

“Today George Osborne made a £3.5 billion tax commitment. Treasury analysis shows it is impossible for him to raise the money he needs to pay for this commitment from his proposals on residence and domicile. Initial costings by the Treasury show that George Osborne’s proposal would raise a maximum of £650m, leaving George Osborne at least £2.9 billion short.”

It is a sacking offence for civil servants to engage in party political work. Darling has just press released a confession to a fundamental breach of the Civil Service Code. In reality politicians often pressure civil servants to cross the partisan line, discretely behind closed doors where they would be unlikely to be caught, certainly not with the work press released during the opposition’s party conference. Gus O’Donnell, who heads the Civil Service, will not be impressed with this at all.

In more honourable times, a Minister would have been expected to resign if he was found to have pushed Civil Servants to break the rules. New Labour are increasingly unable to separate their private party interest from the interests of the state…

Hat-tip : Benedict Brogan