Many Governments around the world have already significantly increased their country’s national debt and face the prospect of having to continue to do so for some time yet.
So how will governments pay for COVID19 and manage this mountain of national debt in the coming years?
The options are limited and some are more palatable than others in line with certain political pledges that may have been made at election time.
The fact that interest rates are low does help, or rather gives some breathing space, in order to formulate such a plan.
The options may include:
- The sale of state owned assets – but is there an appetite for this in the markets or might this route result in a “state give away”? Will there be any buyers or will any personal savings have been used up?
- Increasing state revenues – governments have the option of increasing tax rates through legislation.
Alternatively Governments could increase the tax base, i.e. the number of taxpayers that should be taxed. This may involve changing legislation, although for some governments , it may just mean a different application or interpretation of any existing law.
Either route on their own may be politically unacceptable.
Perhaps the level of financial penalties could be tweaked in terms of when they are applied as well as how much?
It could be a combination of all these measures.
The UK perspective
I suspect all tax rates may be increased marginally across the board but in the knowledge that any increase can dampen the demand for goods and services.
I further suspect that HMRC will challenge those who are not seen to be paying their fair share of tax.
Since 2019 there have been a number of challenges and “nudge letters” on individuals and more recently on offshore structures based on trusts, corporate, partnerships etc. There is a suggestion that there has been an increase in the number of British expats coming forward to declare previously unpaid tax.
Having widened the tax base (for both now and the future), I will not be surprised to see HMRC automatically applying penalties across the board (including the arena of tax avoidance) and higher penalties.
HMRC now have extended time limits to make such challenges.
The Common Reporting Standard will be instrumental in providing HMRC and other tax authorities information they can act upon.
UK taxpayers (and non taxpayers!) would be wise to seek specialist advice if they have any concerns and arguably sooner rather than later.