Tax injustice is often overlooked as a factor in global inequality. In this article, Eve Livingston details how effective tax collection measures can improve global wealth distribution and enhance the capacity of poorer nations to develop infrastructure and improve lives.
It’s not news that we live in a time of extreme global inequality. Oxfam’s annual inequality figures tell us the richest 1% have more wealth than the rest of the planet combined. Eight men – some of the most familiar amongst them Bill Gates, Mark Zuckerberg and Warren Buffett – own the same wealth as 3.6 billion people, the poorest half of the world’s population. Extreme inequality is central to many analyses of recent political events such as the UK’s decision to leave the EU and the election of Donald Trump as US President. The methodologies used to measure and analyse inequalities are many and contested, but almost universally they say the same thing: that global inequality is worsening, and that the world finds itself at a crisis point.
As stark as these figures are, the reality may be even worse. Official statistics and measures are only able to account for money legally passed through tax systems. Recent large-scale leaks, such as the Panama Papers and those detailing the dealings of HSBC’s Swiss subsidiary, may present a fuller picture of the staggering amounts of money hidden in offshore tax havens. A 2017 study by the economists Annette Alstadsæter, Niels Johannesen and Gabriel Zucman used these leaks, alongside highly detailed Scandinavian tax records, to put together a picture of the true scale of tax evasion and its impact on global inequalities.
Their findings show a strong correlation between increased wealth and increased tax evasion, with the wealthiest 0.01% in Scandinavia evading 30% of their taxes, on average, compared to 3% in the wider population. Traditional analyses based on random audits have thus far been unable to capture such a full picture, or to account for the astronomical levels at which the super-rich have accelerated global wealth inequality by secretly funnelling billions of pounds of wealth offshore.
HIDING IN PLAIN SIGHT
Tax havens can straddle both sides of the legal division. While no official definition for the term exists, a ‘tax haven’ is widely taken to refer to an area in which people can store wealth in order to escape the laws and regulations of other jurisdictions. The clarifying point about tax injustice is that it necessitates a world full of secrecy, double-meaning and blurred lines. Definition in this area is not easy but broadly speaking, tax evasion refers to the criminal activity of under-declaring taxable income, while tax avoidance is about ‘getting around’ the law without actually breaking it.
The simple act of having a bank account in another country is perfectly legal, but actions undertaken in relation to offshore savings can often cross the threshold into illegal activity. Regardless of the technicalities of the law, evasion, avoidance and tax havens – whether employed by wealthy individuals, institutions or corporations – are widely accepted by global development experts simply to constitute different forms of immoral activity which serves to benefit the wealthy and widen and sustain global inequalities.
Oxfam estimates that corporate tax dodging costs the world’s poorest countries at least $100 billion annually; enough to educate the 124 million children who are not in school, and to fund potentially life-saving health care interventions for six million children.
While fiscal justice, taxation, and financial globalisation might not have the immediate appeal of some other international development campaigns such as those to build schools, provide infrastructure, or train doctors, it is far-reaching enough to cover all three and more. There is also the potential to confront deep-rooted structural inequality, rather than simply accounting for its symptoms.
Oxfam estimates that corporate tax dodging costs the world’s poorest countries at least $100 billion annually; enough to educate the 124 million children who are not in school, and to fund potentially life-saving health care interventions for six million children. In Bangladesh alone, ActionAid suggests that $85 million dollars were lost in 2013 to legal tax evasion practices, essentially denying healthcare to 3.4 million citizens that year. Of the tax collected, the majority came from regressive consumer taxes such as VAT which place the burden on vulnerable populations rather than income taxes which are aimed at redistributing wealth as well as generating income.
Development and feminist charities have long argued for the framing of investment in public services as a feminist issue, given that it is women who suffer most when they are deprived of them. Water sanitation can provide just one example. WaterAid reports that women and girls living in poorer countries are most likely to bear responsibility for collecting water and thus experience the health impacts of long and strenuous journeys. This laborious job also consumes time which could otherwise be spent attending school or gaining other skills. The solo undertaking of this task also often sees men prey on women and girls collecting water alone and far away from their homes – many report sexual assault and abuse as part of the task of water collection.
Trapped in a cycle of poor health and poverty, and with few resources to improve their situation, women and girls fall out of public life and remain consigned to menial tasks. The gender dimension to these problems has been acknowledged by the Global Tax Justice Campaign which observes that discriminatory national tax laws, tax havens, and tax cuts for the rich, “protect capitalism and male privilege, and intensify gender inequality.”
A human rights analysis can also be entirely appropriate when examining the implications of widespread tax evasion and offshore havens. Governments, after all, are bound by the principle that they should maximise resources to deliver human rights commitments around access to food, water, and shelter, amongst other key entitlements. This principle is clearly violated by the knowing and intentional creation of secret wealth protection measures which deprive citizens of public money. More sinister still, tax avoidance can even be seen as fostering a culture of human rights abuse, with the secrecy and power disparity engendered by offshore projects creating a culture of impunity and obscured accountability.
UNBREAKING THE SYSTEM
Most of us are more likely to put some money in a bucket promising mosquito nets and schoolbooks than we are to actively campaign around issues of tax justice. But charity and foreign aid can only take a developing country so far. There is undoubtedly a role for foreign aid, not least in recompensing developing countries for what has been inflicted upon them by Western economic policies. However, tax remains the most sustainable and beneficial form of income generation for development: the Tax Justice Network reports that tax revenue in Africa is worth ten times the value of foreign aid.
Crucially, though, aid is also politically contingent. It is often ring-fenced and can construct a relationship in which there is an expectation of gratitude, or where government leaders feel accountable to foreign governments more than to their own citizens. Tax, too, serves more purposes than aid is able to, with progressive tax measures effectively raising revenue whilst also redistributing wealth and tackling inequality.
Tax remains the most sustainable and beneficial form of income generation for development: the Tax Justice Network reports that tax revenue in Africa is worth ten times the value of foreign aid.
The issues we face here are not those of accident, neglect or an unfortunate by-product. They are instead the consequence of an explicit attempt by the powerful to retain their wealth and reassert the structures which keep them at the top. Tax evasion is a political issue and the question of how to confront it is thus one of political will. While government leaders and formidable institutions remain entangled within the power-web that tax injustice protects, they are far less likely to take meaningful action against it. The Panama Papers implicated 143 politicians and 12 national leaders – including then Prime Minister David Cameron – and numerous leaks and whistleblowers have highlighted the enabling function that the ‘big four’ financial services firms perform in avoiding and evading tax.
The implementation of transparent taxation systems, with visible consequences in public investment, can strengthen democracies by creating a social contract between taxpayers and the state. This increases the likelihood of citizens holding their leadership to account. The state-building function of progressive taxation extends also to the incentive for building and maintaining strong institutions which ultimately benefit all citizens and societies as a whole.
It seems fruitless, if not impossible, to discuss issues of global inequality and human rights without employing a tax justice lens. If it feels like an issue too far-reaching and impenetrable to tackle effectively, that’s because the secrecy and conspiracy it is shrouded in is designed to make it feel so. But progress is being made all the time through whistleblowing, data leaks, and campaigns which target individual institutions, local government and specific individuals.
The Panama Papers sparked some of the largest protests in Iceland’s history – the country’s President was forced to resign as a result. Lobbying by ActionAid saw the UK government commit to action on tax dodging at the G12 summit in 2013. Organisations such as the Tax Justice Network continue to do great work exposing tax scandals and pushing for alternatives. The Global Alliance for Tax Justice has achieved commitments globally to tackling inequalities related to taxation, as well as inspiring action at a local and national level in various countries.
Tax injustice is a scandal that can and will be tackled. But those of us committed to addressing global inequality need to keep the issue at the top of our agenda.
Eve Livingston is a UK-based freelance journalist and writer specialising in politics, inequalities, and social justice issues. She has worked with a range of publications and broadcasters including The Guardian, The Independent, and the BBC. Find her on Twitter: @eve_rebecca.
Featured photo: Marchers at the 2017 Tax March in Washington DC protest President Donald Trump’s refusal to release his tax returns. Image: Flick [CC BY 2.0]