terça-feira, dezembro 20, 2011

Tragedy of Errors - the Troika and the Madeira Offshore

The decision to impose corporate and income taxes or the banks and clients operating in the Madeira banking offshore is one more of the policy errors which are turning this Eurozone financial crisis into a disastrous crash with yet unforeseen consequences.  It's as if the IMF has failed to adapta their usual remedial programs  to account for the new constraints of adjusting for Balance of Payments deficits within a Single Market and the Single Currency. 

In order to satisfy the Troika, the Madeira Free Trade zone will loose most of the tax exemptions that made it attractive to non-resident depositors and other clients, including the absence of the WHT withholding tax of 21.5% on interest income which applies in Portugal. 

As a result, even the Portuguese banks are shifting their business to other, less regulated, offshore financial centers.  Thus Portugal will lose the non-resident deposits which played such an important role in the Balance of Payments recoveries in earlier periods such as the 1980's.   In the 1990's, non-resident deposits, most consisting of emigrants' remittances from Portuguese workers abroad, amounted to about EUR 2.7 billion/year, and consistently represented about 30% of the total banking deposits in Portugal, thanks to a positive real interest rates and good tax benefits. 

No such help can be expected this time around, as policy errors work to promote capital outflows rather than capital inflows. 

We know, from McKinnon and other authors, that promoting savings and capital inflows is not just necessary but essential as Portugal struggles to cope with the financial crash. 

What are they thinking?

Mariana Abrantes de Sousa

Sources:    ,  Emigrants remittances in Jornal de Negocios
See also Eurozone tests the limits of divergence and What the Troika overlooks
Emigrantes como parceiros previlegiados

Caixa Geral de Depósitos (CGD) está a transferir a operação que tem na zona franca da Madeira para o paraíso fiscal das ilhas Caimão, segundo noticiou esta terça-feira a RTP.
Em causa está o fim de alguns benefícios fiscais no offshore da região portuguesa, particularmente a tributação dos juros nas contas dos não-residentes a 21 e meio por cento.
A Caixa já informou os clientes da transferência para as Caimão. Na Madeira, a opção do banco estatal está a ser muito criticada, segundo o canal público de televisão.Fonte: