Thursday, 2 October 2014
A recent report by Oxfam titled Working for the few found that rapidly growing inequality is worsening poverty around the world. Oxfam noted that the richest 85 people in the world own as much wealth as half the world's population and observed:
This massive concentration of economic resources in the hands of fewer people presents a significant threat to inclusive political and economic systems. Instead of moving forward together, people are increasingly separated by economic and political power, inevitably heightening social tensions and increasing the risk of societal breakdown.
Through the use of tax havens, the world's wealthiest individuals and corporations are avoiding their tax obligations on a scale so grand as to make all foreign aid combined appear trivial by comparison. It is conservatively estimated that $21 trillion to 32 trillion is held unrecorded and offshore. If these financial assets were reported, the tax revenue generated—at a rate of 30 per cent—would be between $190 and $280 billion annually, according to the Tax Justice Network. The Tax Justice Network notes this is:
… roughly twice the amount OECD countries spend on all overseas developme nt assistance around the world.
As the wealthiest few individuals and corporations —f or example Apple, Google and 21 st C entury F ox here in Australia—e ngage in capital flight to tax havens with their ever larger share of the economic pie, governments will increasingly struggle with tumbling revenue. It is the working poor and middle income earners who will bear the burden of tax and suffer the public service cuts.
Oxfam notes that while the use of tax havens hurts the populations of both developed and developing countries :
T he impact of extreme inequality is most keenly felt in developing countries where missing out means remaining trapped in the cycle of extreme poverty.
A Christian Aid report has found that tax avoidance practices—which include profit-shifting, transfer pricing, false invoicing, intra-company loans and the use of legislative instruments allowing extreme company secrecy— a re bleeding developing nations of more than $160 billion in tax per year. This is a much larger figure than the amount received by these countries in aid, which in 2009 was US$120 billion. Christian Aid estimates that these lost revenues could save the lives of around 350,000 children each year.
Having worked in developing nations and witnessed poverty-driven instability around the world, I am with the critics of secrecy jurisdictions like the US state of Delaware—it i s home to more than half of the world's Fortune 500 companies—the City of London, Switzerland, the Maldives, and the Cayman Islands, among around 65 others who make up the Financial Secrecy Index. As Leslie Wayne found in his 2012 The N ew York Times investigation of Delaware's tax - friendly attraction:
Big corporations, small-time businesses, rogues, scoundrels and worse—all have turned up at Delaware addresses in hopes of minimizing taxes, skirting regulations, plying friendly courts or, whe n needed, covering their tracks.
As the Tax Justice Network observes of tax havens, in its second edition of Tax Us If You Can:
All they provide is a place to record a transaction whose impact is elsewhere … the aim is to make them accountable to no one, pay tax to no one, and to have no duty to report anything to anyone because it can deny it is anywhere.
Many community organisations including Oxfam, Oaktree, and the Micah Challenge through its campaign Shining the Light on Tax Dodging and Corruption, are calling upon Australia, as chair of the G20, to show strong leadership in addressing this issue, which would also serve the G20's already-stated objectives regarding economic growth and job creation.
These community campaigners have identified the three necessary measures for the G20 as follows. The first is that the automatic exchange of information between tax authorities, which is already supported by Australia, needs to become a global standard and developing countries need support to make use of that system.
The second is disclosure through a public register of the true owners and beneficiaries of companies, trusts and foundations. Currently Australian law does not require multinational corporations to disclose the existence of all their subsidiaries that exist in tax havens—unlike the EU, which voted in March this year to create a publicly accessible register.
The third is country-by-country reporting, or CBCR, for multinational corporations. Currently, international reporting standards only require multinationals to produce reports at a global level, which makes it impossible to discern how much was earned or invested and how much tax was paid in each country in which they operate. The US requires listed companies in the oil, gas and mining sector to do CBCR and the EU has mandated it from 2015 for large companies, including banks. The OECD has developed a draft template for CBCR which will make it harder for companies to shift their profits and give citizens the access to information they require to hold their governments to account for the revenue they receive. Some corporations, such as Rio Tinto and Paladin Energy, already report this way. The challenge now for Australia, as G20 host, is to adopt CBCR itself and to ensure that country-by-country reporting is endorsed by the G20 as the standard.
Clearly the issue of global inequality is a large and growing problem that will not be resolved only by ridding the world of tax havens but also by supporting the drive to greater transparency and accountability and by reducing the ability of the wealthy to avoid contributing to society in the places from which they derive their profits. (Time expired)