Taking on the tax evaders
The financial crisis which began in 2007-8 and the economic crisis which ensued and which shows no signs of abating have drawn attention to the problem of tax evasion. Most of us pay our taxes most of the time simply because we have no choice, though we also recognise that they are the price of living in what still just about qualifies as a civilised society. Systematic tax evasion is generally the province of the rich and more importantly of multinational corporations. Every year throughout Europe thousands of billions of euros in tax is evaded by multinationals which use a complex of exotic fiddles to get out of paying, in some cases, any tax at all, or very little. Worse still, this often involves the active collaboration of governments. Not governments of statelets like the Cayman Islands, which seems to have no reason to exist beyond allowing multinationals to dodge their taxes, but our own governments here in Europe and that of wealthy countries elsewhere which go around the world preaching the gospel of ‘good governance’ and ‘sound finance’.
The question is - what can be done about this? The crisis, in the face of which governments have found themselves in a situation where it has become clear that they are not raising sufficient income, and where the resulting spending cuts are killing all hope of recovery, appears at first sight to present us with an opportunity to have this problem addressed. However, there are two problems with this. Firstly, corporate capture of many governments has led to a transformation of political perspectives, a situation in which the ‘market’ has become quite openly acknowledged as the final arbiter of policy, with electorates having at best a consultative role. Secondly, any effective way of addressing and ameliorating the problem will demand international cooperation, and this will be seen by the European Commission as one more opportunity to erode national sovereignty in the name of necessity. Make the mistake of handing them the kind of powers they would need to deal with the situation and experience tells us that these will be abused, with working people and the poor the ultimate losers.
Nevertheless, something must be done. According to a report from the Organisation for Economic Cooperation and Development, multinationals are taking advantage of opportunities provided by new technologies and globalisation, as well as their own deliberately overcomplicated structures, to use a variety of devices in order to evade and avoid taxes. The difference between ‘evasion’ and ‘avoidance’ is that the latter takes advantage of loopholes in the law to dispense with the need for actual criminal practice; evasion, on the other hand, is when you commit a crime to avoid coughing up, a difference once summed up by British Labour Party Chancellor (finance minister)Dennis Healey as ‘the width of a prison wall.’ The result of all this dodgy activity is poverty, misery, disease and premature death. Welcome to the Third World.
Developing countries typically take just a little more than an eighth of their Gross Domestic Product in taxation, about a third of the proportion which developed countries extract from their own much greater GDP. This is in part because of the poverty of many of their citizens, who simply don’t earn enough to be taxed; it is in part because of the extent of the informal economy; but it is in large part because MNCs active in those countries register elsewhere, and channel their profits through tax havens where taxes are very, very low or absolutely non-existent.
Because of this, with the best will in the world, these poorer countries cannot afford to provide adequate services for their people and leave themselves vulnerable to being forced by the International Monetary Fund to cut employment and social spending in order to pay their debts. The OECD has calculated that via tax havens developing countries they lose three times the amount they are able to collect in tax. These losses amount to an estimated €140 billion per annum, while a stunning €25 trillion is held in tax havens at any one time. To put this into perspective, it is almost as much as the combined GDP of the two countries which top the GDP table, the United States and China. This is theft on an unimaginable scale. It produces some bizarre ‘mouse that roared’ type figures, though these are extremely misleading. The British Virgin Islands, for instance, with a population of fewer than 22,000, is on paper the second biggest supplier of Foreign Direct Investment (FDI) to China.
Britain is, of course, ultimately responsible for its colony’s government, even if the latter now has a high degree of autonomy. The same applies to tax havens closer to home, such as Jersey. Many other European countries are just as guilty, however. The Netherlands, for example, has 20,000 companies registered which in reality consist of no more than a post office box number. Together they control almost €8 trillion. The Dutch tax office provides them in advance with information as to the amount they will pay in tax, which is not very much at all – unlike Dutch working people and small businesses.
What then can be done? Firstly, corporations should be obliged to state in their annual reports exactly how much tax they pay and where they pay it. This would make it possible to identify those firms which use tax havens and identify necessary reforms. Secondly, we should be demanding that governments move to shut down tax havens within their jurisdiction, or exert pressure via aid and trade elsewhere. We need an international movement to end bank secrecy. Indeed, tax evasion could provide the spark needed to enable a real international movement to confront a broader range of issues and revive the left. Tax evasion by the rich and by wealthy corporations is an issue around which we can rally support at a time when there is a serious danger of working people’s votes going, in frustration, to vermin like UKIP, the French Front Nationale, or Wilders’ party in the Netherlands.
And we should remember, as dissident Jersey Deputy Montfort Tadier said recently, that the losers from all of this are ‘state whose coffers are empty and all the citizens who pay their taxes honestly.’
Steve McGiffen is Spectrezine’s editor. He writes a regular column in the Morning Star, where this article first appeared.