What rich people do during a pandemic?
In today's newsletter, we talk about rich people and the renewed interest in citizenship investment programs.
The Story
There’s something interesting brewing outside India.
People are demanding new passports. Not any passports, but passports of countries that have managed to control the pandemic better than anybody else. They want to travel here. They want to pursue business opportunities. They want to study. They want to vacation. They want an escape from Covid-19.
And we know all of this because rich people now seem to be pursuing citizenship-by-investment schemes like never before. It’s a pretty interesting program where select countries offer you citizenship or residency in exchange for a sizeable economic contribution. In other words, you pay to acquire a second passport.
For example, the cost of obtaining a permanent residency in the Caribbean region is around $100,000 per family. Malta and Cyprus charge between $1.1 million- $2.2 million. Austria charges a whopping $7.6 million. And in most cases, these countries can raise quite a bit of money opening up these programs.
For instance, when Malta’s programme was launched in 2014, it raised over $1 billion within 18 months — an astounding sum for a $10 billion economy. And now that we have a pandemic at large we are seeing renewed interest in the program from high net worth individuals who are seeking a getaway.
Apparently, new inquiries for investment migration programmes across the world have jumped 49% in the first four months of 2020, compared with the same period last year. Also, applications for a new nationality have increased by 42 % between January and March. And this has led some to speculate that we might see the boom of a new industry — where people pay to acquire citizenship en mass.
However, that might not entirely be accurate.
Usually, when you acquire citizenship by way of a sizeable investment (in property or land), you are not bound by the tax laws of this country. So although your investment might generate considerable cash-flows upfront, there isn’t a recurring contribution to the state since you won’t pay taxes.
And this has some major implications. For instance, an average taxpayer contributes 15 years of his or her income in direct and indirect taxes in the US. So if a state provides free healthcare to its citizens its only fair that this service is extended to people who contribute regularly. However, in most cases, the country does not differentiate between different kinds of citizens.
As an article in the Global Citizenship Observatory notes
In case, the number of patients (resident citizens, resident non-citizens, non-resident citizens who have strategically relocated) in need of intensive care is greater than hospital capacities, there will be resource allocation and prioritisation issues. What are the criteria on which those scarce resources will be allocated? How do we compare a one-off contribution to the national exchequer and a long-term tax and social security contribution record? In a crisis like a pandemic, diverting state resources to privileged people could be deeply resented by citizens who are suffering, who have to accept draconian restrictions of their freedom, and who are not guaranteed a hospital bed or a ventilator if they needed one.
Which is why it becomes imperative to draw clear boundaries on the responsibility of the state. What services will the state provide? What protection will it offer? Will these people be evacuated if they are stuck elsewhere during a pandemic?
And since some of the countries that offer citizenship by investment already work with limited resources, it’ll be hard for them to bear the full brunt of this burden. Meaning, they will draw new restrictions and demand for passports will plateau.
So despite the renewed interest, it’s unlikely that we will see a significant boom in the industry and now you know why.
Until next time…