What should we do about black money? The argument is ongoing -- the government is saying that if it's invested in good stuff then people can whiten that cash by paying a reasonable fine. The Centre for Policy Dialogue thinks that's not good enough. For what we end up with is an ongoing system -- people can make more black money and whiten it in the future. This definitely is, as the CPD says, an affront to those who currently make their money the hard way -- by obeying the law.
This is one of those areas where we have to accept that there is no solution. Actually, like nearly all areas of life -- there is no solution, there are only trade offs. We can be really hard on black money but if we are then none of the past such will be whitened. We would really prefer that that black money which already exists is turned around, legalized, then used in the legal economy in the future.
On the other hand we really, really don't want people making black money in the future. So, we want severe punishments in order to deter them.
As I say, just one of those problems where there's no one single clear and perfect solution. Everything is a trade off -- how weak should we be in order to gain legalization and how strict to prevent further black money?
We're already doing one thing right. This government -- most unlike the past one -- is not handing out import licences, tax breaks, development land, on the basis of political support. Further, by far the largest drain was the allocation of bank loans -- on the expectation that they would not be repaid -- from state banks in return for that political support. That's now all over. So, the easy way to make black money in the past -- support the past government -- doesn't work now. This is good.
But, still. We want past money to confess and become legal again but at the same time we don't want any more black money being made.
Making black money cleanup fast, easy, and cheap
Yes, sure, a fine should be paid. But a modest one. We want the newly legal money to be used legally in the future. This will annoy an awful lot of people.
We punish any future instances of black money really severely. Confiscate it -- all of it. In British English we say “Come down like a ton of bricks on it”. Really, stamp those who do it in future into the ground. This will annoy everyone else we've not already annoyed with the first part of the plan.
But there's a third part too. The authorities know some -- not all, but some -- who have in the past made this black money. They'll also know a few who are trying to make it right now. So, investigate those. Have the case against them, the prosecution, ready.
Now we say that black money declared and legalized before this date (say, 6 months in the future) gets the light treatment, a mild fine. But any declared or made after that gets confiscated. And, in the next 6 months before that date, if you don't declare it but we find out and prosecute, then you get the punishment of 6 months in the future. Not the light fine as of now, but the full might of the law in 6 month's time.
So, we announce this policy. We wait for a week. Then we prosecute those we already know about, but who have not confessed, under the really strict law. Then we sit back and marvel in wonder as all those who were thinking about it suddenly decide to declare and legalize.
The problem with this is that it doesn't please anyone. On the other hand it's about the best we can do. That necessity to accept that there are only trade offs, no full solutions to anything.
What we really want is for people to stop making black money. Those who made it in the past, well, they're not so important as making sure there are none in the future.
Tim Worstall is a senior fellow at the Adam Smith Institute in London.
