Ramos Horta pushes for tax-free East Timor

No sooner do I post about Indonesia than I see a story about East Timor. Background:

East timor

The Democratic Republic of Timor-Leste. They’re having elections again, parliamentary this time, not Presidential. Last year Jose Ramos-Horta, former Foreign Minister-then-Prime Minister, won (resoundingly) that one, succeeding clear hero of independence Xanana Gusmao who is now running for Prime Minister in these parliamentary elections. To be fair they only won independence in 2002, suffered rampaging militant loyalists and UN intervention – a poor enough start for the first new nation of the century.

On to the story. With a PPP-adjusted GDP of USD800 per capita they’re among the poorer end of the nations of the world – according to the CIA factbook (2005). According to the IMF, GDP is USD1700, from 2004 estimates. Given that East Timor is pretty drought-prone, I wouldn’t be surprised.

So Ramos-Horta has said he wants to follow Hong Kong’s model of very low, very simple taxation. No estate taxes, stamp duties (such as they are) are due to be removed, earned-income taxation is simple and with very low marginal rates, as are corporate taxes on earned-income. Those two are just about it, and they’ve proved remarkably good at bringing prosperity to Hong Kong (being rented out by England and made a trade/finance hub helped, too…).

It’s pretty interesting. The differences between the two are substantial:

  • Hong Kong has few natural resources. East Timor has the Greater Sunrise gas field, worth around USD30bn. The sharing between East Timor and Australia has proved to be very entertaining (we tried to screw them over, and eventually settled for a very small share of the revenues).
  • Hong Kong is a technocracy; East Timor is a republic. More importantly, a republic that fought like hell for its independence, at the hands of the people (rather than the capitalists, distinguishing it also from the US). This will alter government intervention in markets and social infrastructure, which is minimal in Hong Kong.

So slightly different. Ramos-Horta wants to use the oil and gas reserves – a common treasury – to rebuild after Indonesian loyalists laid waste to what infrastructure they had. By doing this with those revenues, and keeping the tax system very neat and simple, he’s setting East Timor up for the sort of streamlined capitalist economy that Hong Kong has. Which may or may not work as well as it did there. It certainly won’t work out as badly as other nations – say, Nauru or Liechtenstein – but it has to start from scratch, without a British Empire on one side and China on the other, to build there first.

Also, the best coffee comes from East Timor. Buy some if you ever see it.

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