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Dutch

Until now Dutch taxpayers have been levied taxes on ‘assumed gains’. Say you have $1,000, you might earn interest of $100 but the law might decide your assumed gain was $300 and on that amount you would have paid tax. The idea was to tax the appropriate income from assets, not the gains themselves. It sort of worked until falling interest rates caused large disparities between what people were actually earning and the tax they were being charged.

It sounds crazy, so crazy in fact that the Dutch Supreme Court ruled it illegal.

The new “fairer” Box 3 tax was approved by the lower house of the Dutch parliament on Friday. It will be based on actual gains but as drafted extends to capital gains. So, as it stands, at every year end the Dutch will be taxed not only on their income but also their paper gains.

This is all still to be approved by the Senate and then to be implemented by the government. The headline is “Dutch impose 38% unrealised gains tax”. Likely that will not actually happen because it will be massively watered down in implementation.

It’s beside the point though. Unrealised gains discussions are live across the world. We’ve had it in Australia. We have it in California where a one-off wealth tax of 5% on billionaires has been proposed. Norway did it too (and tax revenue dropped sharply). 

In California, it seems unlikely that this will take effect, but it has been sufficient for Peter Thiel, Mark Zuckerberg and plenty of others to leave the state and set up bases elsewhere in the US. As in, even before it became law, it is a complete disaster because of the clear intent it signals. The lack of general pushback also suggests that the general population doesn’t care. Why would they? 

The issue seems to be that real incomes are falling everywhere. The whole concept of personal income taxes as a meaningful share of government income is going to change. The Australian government forecasts income taxes rising to 55% of total receipts by 2033. That seems very unlikely, not just here but across the world. 

The money will have to come from somewhere. Wealth taxes seem like a shocking theft today, but gradually they will be normalised. California and Holland’s proposals seem unlikely to succeed but they already worked. We talked about them, we were outraged and next time we will be slightly less outraged, and again, and again and then they will be here. We will ask, how did that happen? This is how. 

Quantum (again)

We covered the quantum challenge late last year in ‘The Quantum Problem’. In essence, a quantum computer can factorize large numbers in a way a classical computer cannot. Accordingly, a quantum computer could (at least in theory) break Bitcoin’s encryption. This is a much more general issue than bitcoin, governments worldwide are aiming to move to quantum proof  algorithms in the early part of the next decade. They will all do so under the cover of darkness. Bitcoin will have to walk the path in public.  

Enter BIP360 which is the first step in quantum proofing bitcoin. This has now progressed to the formal proposal stage meaning it will be considered for inclusion in the source code. In essence, it hides public keys until the moment bitcoin is spent. When coins enter the mempool waiting to be confirmed there is still what is known as “short exposure”, so the coins would be exposed at that point to a double spend attack if a quantum computer were to direct its power at the transaction. Bear in mind it would take billions of years for a classical computer to do it and something like 30 minutes to 8 hours for a quantum computer of sufficient size (which does not currently exist). Given block times of 10 minutes it is still very unlikely to succeed. Still, the change needs to be made. 

The next step then is to replace the signature scheme of bitcoin with a post quantum scheme. That would address the short attack window while transactions are in the mempool. It also comes at a cost though because Post-Quantum signatures are large. 4 KB v 64 bytes for the current signatures. This has consequences for transaction throughput etc. because blocks would fill more quickly with quantum proof signatures. 

This will get more and more air time and it should. This is a much more general issue though, if a large quantum computer arrives, you will not be worrying about bitcoin, I assure you. 

UK

17% unemployment then for men under 24. In fact the number not actually working is much higher of course because many are in education and training at that point. One quarter of under 24s do not work. Fine if you are doing a PhD in Rocket Science as the government claims everyone is, but there is no evidence of it from Britain's rocket launch count (zero). 

It has been much worse, in 2011 post financial crisis, but it is surging now at a rate not seen before. 

Early last year we covered that the government response in Australia to the creep of artificial intelligence would be exactly the wrong one. Specifically, legislation would be introduced to ‘protect’ workers and in so doing would have exactly the opposite effect. That is pretty much what has happened in the UK. The Employment Rights Act which became law late last year offers the following benefits:

• Paternity and unpaid parental leave from day 1

• Bereavement leave from day 1 - 24 weeks (unpaid)

• Day one right to flexible working

• Sexual harassment; employer must take ALL reasonable steps to prevent it

• Large employers must have plans for supporting menopausal persons

• No waiting limit for statutory sick pay

• Unfair dismissal window reduced from two years to six months

• Repeal of trade union restrictions under earlier governments

Taken individually, and considering the stories that would have given rise to the change you could probably accept all of them. Along the lines of “we are a modern and fair society, so this is all reasonable”. It is fine of course, unless you are the employer. It’s a lot of risk “all steps to prevent sexual harassment”? Like what? How could one possibly achieve that save housing the opposite sexes in different parts of the building which itself would bring a discrimination lawsuit. It is impossible really for the employer to win here if an exploitative employee wants to make life very difficult.

The natural response then is we need to be extremely careful who we employ. Better yet, let's not employ anyone at all. The only institutions which seem geared up to handle this level of admin are governments themselves who both in the UK and Australia are the primary engines of employment growth. How could they not be? 

This chart is from Britain’s Office of National Statistics. It shows regular real pay and CPI. In essence real wages have gone nowhere in the UK for twenty years. If you use RPI (which includes housing cost) it's even worse. What’s more you would have to actually believe in the CPI and the RPI number to believe you only got a little bit poorer. 

It couldn’t be any other way though. Regulation skews so savagely against labour. Everything that is designed to ‘help’ destroys it. It seems so obvious and yet so unstoppable. You can tell from the absolute refusal of any CEO to say “we sacked a load of people because of AI”. Nobody would dare. Nobody will dare but it will happen anyway. 

Ultimately, you are either really good with the AI tools, or you are working for the government. 

Lagarde

First, the head of the French Central bank resigned so that President Macron could choose a successor before his own term ends. After all, it’s France, Macron was duly elected and a person can resign whenever they wish.

Now though, the French head of the ECB is also leaving early. The absolute stalwart of this column since the very beginning, our beloved Christine Lagarde. Again, the timing will allow Macron to at least have influence over her successor and indeed a virtual veto right. The appropriateness of this is rather doubtful. European voters did not vote for Macron (or Lagarde). You might consider that machinations like this are rather contrary to the claim of the EU being democratic. 

So far, we have had:

Willem F. Duisenberg (Netherlands): 1 June 1998 – 31 October 2003

Jean-Claude Trichet (France): 1 November 2003 – 31 October 2011

Mario Draghi (Italy): 1 November 2011 – 31 October 2019

Christine Lagarde (France): November 2019 - (In theory October 2027, after Macron leaves)

They started well with a neutral. Now France has had two, Italy has no chance with Meloni in the chair. 

The French strategy is quite clever . The President of the European Commission is also German (Ursula von der Leyen), so it’s quite unlikely that those presidencies would simultaneously be German. 

France is in a tight spot, their borrowing requirements over the next decade are enormous. The last thing they need is a strict German at the ECB, so what must be done, must be done. My vote goes to Spain, but Germany is going to try hard for their man Joachim Nagel.

I couldn’t find bookmaker odds for it but here are mine with a generously priced 102.5% market.

Joachim Nagel 4/5 (Germany - the best candidate by far but German)

Any Spaniard 3/2  (Spain)

Isabel Schabel 19/1 (Germany)

Anyone French 50/1 (France)

Not out of the question that Ursula von der Leyen resigns to help the German case. It’s not a trivial choice. It will set the path for the European borrowing agenda for the next decade. Very important people are resigning from big jobs because the importance of the outcome is clear. 

Euro-Trash

Perhaps you have not heard of Peter Steinberger. He is the author of the AI program ClawdBot. I use it and it is amazing, basically an AI harness that sits on your computer and can do anything you like. His story over the last few weeks has been rather special. 

He launched ClawdBot and was promptly sued by Anthropic over the use of the Clawd name. His software is open source and he is just one guy, so he quickly capitulated. It became MoltBot. Shortly thereafter, he was approached by OpenAI who offered him a gajillion dollars to come and work for them. Now it is OpenClaw. 

It is rather instructive though. Genius German developer writes the most popular piece of AI software yet. It is very good, and the thing everyone has been waiting for. The big software houses (OAI, Anthropic, Google) couldn’t seem to deliver.

One European guy delivers. Next thing you know, he’s moving to San Francisco because in Europe “I get insulted and people scream REGULATION and RESPONSIBILITY”. 

Good luck to him. Cool software, cool story.

Further Information

Our January 2025 report to investors can be found here.