Cypriot counterintution part one: "It was a good thing"

Should we be cheering one of the first wealth taxes of this millennium?

As the Cyprus saga continues, the interesting counterintuitive takes are starting to bubble up. Obviously there's a tendency, when so many people agree on the broad strokes of the news – that Cyprus is in a crap position, that the tax is pretty stupid, and that there's not a whole amount of other options – to go against the grain for the sake of it, but each of these arguments have merit to them.

First up is Philip Inman in the Guardian, who argues that we should ignore the "hysterical reaction" to the tax, because "it is a wealth tax – and about time too." Inman writes:

A wealth tax on bank deposits, where most wealth is held, is consequently a practical solution that also fulfils a basic economic need, which is to shift taxes away from income to wealth. Poorer citizens need to feed themselves, and a tax on incomes, especially for those with no savings, is the worst outcome.

It mimics an argument that was going around Twitter yesterday, pointing out that "a 1 [percentage point] rise in Sales Tax would be way more regressive and not even raise an eyebrow." Of course, it's questionable whether that increase increase in sales tax could raise quite as much as the tax on deposits, but that's even more of an argument in favour of the deposit tax.

The real hope for all of this, in fact, is that the Cypriot government will struggle through the negotiations and come out the other side with a deposit tax which applies entirely to deposits over €100,000. As Ben Hammersley tweeted:

 

 

Given that many of the wealthier depositors in Cypriot banks are engaged in questionable financial practices – and even outright money laundering, it seems – it's not a terrible thing to ask that the entire weight of the bailout be put on their shoulders. Of course, even if they weren't, it still wouldn't be that bad an idea, because putting the greatest burden on the broadest shoulders is almost the definition of a progressive tax system.

Except, of course, for the fact that the Cypriot economy benefits from its status as a financial haven. A rebalancing of the economy may still be a good thing for poorer Cypriots, but it's not clear that the hit the country is taking to pay off the ECB is bigger than the hit it would take if it scared away its questionably legal golden goose.

Interestingly, it seems that Cyprus agrees. France has confirmed, and credible reports indicate Germany and Finland back it up, that the negotiations with the Cypriot government only required it to implement a tax on deposits over the insurance threshold of €100,000. Insured deposits were considered sacrosanct to the Troika, but not to the Cypriot government, which needed to "spread the pain".

But the big reason why Inman's counterintuitive take is likely to remain counterintuitive is that a bank run for deposits above €100,000 – or even a bank stroll – is still a bank run. Deposit insurance lessens the chance of people trying to take all their money out, but it still happens, and it does nothing for the money you have above that value.

The chance of contagion is looking slim – although it is still the case that if you're a Portuguese depositor you're likely to be sitting markedly less comfortably than you were last week – but the situation in Cyprus itself is by no means solved yet. If the trust in the country's banks and politicians isn't restored, there will be worse ahead.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty
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Why Ukip might not be dead just yet

Nigel Farage's party might have a second act in it. 

Remember Ukip? Their former leader Nigel Farage is carving out a living as a radio shock jock and part-time film critic. The party is currently midway through a leadership election to replace Paul Nuttall, who quit his post following their disastrous showing at the general election.

They are already facing increasing financial pressure thanks to the loss of short money and, now they no longer have any MPs, their parliamentary office in Westminster, too. There may be bigger blows to come. In March 2019, their 24 MEPs will all lose their posts when Britain leaves the European Union, denying another source of funding. In May 2021, if Ukip’s disastrous showing in the general election is echoed in the Welsh Assembly, the last significant group of full-time Ukip politicians will lose their seats.

To make matters worse, the party could be badly split if Anne-Marie Waters, the founder of Sharia Watch, is elected leader, as many of the party’s MEPs have vowed to quit if she wins or is appointed deputy leader by the expected winner, Peter Whittle.

Yet when you talk to Ukip officials or politicians, they aren’t despairing, yet. 

Because paradoxically, they agree with Remainers: Theresa May’s Brexit deal will disappoint. Any deal including a "divorce bill" – which any deal will include – will fall short of May's rhetoric at the start of negotiations. "People are willing to have a little turbulence," says one senior figure about any economic fallout, "but not if you tell them you haven't. We saw that with Brown and the end of boom and bust. That'll be where the government is in March 2019."

They believe if Ukip can survive as a going concern until March 2019, then they will be well-placed for a revival. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.