May 21, 2015

EY, when focusing on tax in developing economies, why ignore the most pernicious development tax, that on risk-taking?

Bank regulators, with their Basel Accord of 1988 decided, God knows why, that sovereigns were much safer than the citizens who make them up, and that therefore banks needed to hold much less equity when lending to sovereigns than when ending to citizens, like to SMEs and entrepreneurs.

And that, no matter how you want to bend it or hide it, means that banks, compared to a free market without these regulations, will lend more to sovereigns and less to citizens.

And that, no matter how you want to bend it or hide it, means a regulatory subsidy to sovereigns and a tax on citizens.

And this is an especially pernicious tax in a developing country that copycats those regulations, since risk-taking is the oxygen of any development.

And yet EY blatantly ignore this tax that directly taxes development. Why?

EY should perhaps talk with you Sir.

FT, you know I have sent you more than a thousand of letters on this issue, and though you have been ignoring these the last decade, in November 2004 you did publish a letter in which I wrote: “We also wonder in how many Basel propositions it will take before they start realizing the damage they are doing by favoring so much bank lending to the public sector. In some developing countries, access to credit for the private sector is all but gone, and the banks are up to the hilt in public credits.”