Bono from the U2 band, whom we all know as a formidable spokesman on poverty, recently moved his highly profitable company out of Ireland and into a little known country to avoid paying taxes. Last week, after participating in a meeting about tackling world wide poverty and hunger, he tried to defend his decision in an absurd way and faced the journalists’ questions about offshore tax avoidance. He fooled no one. It got me into thinking about such activities which ultimately have a devastating effect on the lives of the world’s poor.
I have spent some time researching the nebulous world of the very rich, their tax havens and how their actions affect continents like Africa where the African Union has estimated that as much as 150 billion (roughly three times more than what it receives in aid) is lost through this abject method of fiscal abuse. Every year. Year in, year out.
Follow me over the orange line.
Tax havens and offshore financial centres (OFCs) have seldom figured as prominently in media coverage of economic affairs as they do today. The main players in the debate are revenue authorities, corporate lawyers, tax accountants and financial journalists. By contrast, the world’s poorest countries are conspicuous by their absence. This is rather unfortunate because offshore tax havens represent an important obstacle to poverty reduction. It doesn't take a rocket scientist to realise that they are depriving governments in developing countries of the revenues they need to sustain investment in basic services and the economic infrastructure upon which broad-based economic growth depends. It is impossible to calculate the financial losses to these countries associated with offshore activity. Secrecy, electronic commerce and the growing mobility of capital have left all governments facing problems in revenue collection. The borderline between tax evasion and tax avoidance is becoming increasingly blurred. But at a conservative estimate, tax havens have contributed to revenue losses for developing countries of at least US 250 billion plus a year if you add Asia, South America to Africa. That is a very conservative estimate, IMO.
Trawling through the "internets", I have estimated that the equivalent of one-third of total global GDP is now held in financial havens. Much of this money is undisclosed and untaxed - and the rest is under-taxed. We're talking about 8 to 12 trillion here, not chump change, to say the least. Perhaps even more. God only knows, and that's saying a lot from an atheist. Recent perusals inform that the OECD is leading an initiative to crackdown on harmful tax competition, UN agencies are trying to curb money laundering, and the Financial Stability Forum (FSF) is examining the impact of the offshore system on global financial stability. I for one don't think that they can reach their objectives unless a strong political will from all developing countries is brought about because without reasonable levels of tax collection, governments cannot maintain the social and economic infrastructure needed to sustain equitable growth. And we all know that the two words "raising taxes" can bring down a well meaning government.
Tax havens and harmful tax practices provide big business and wealthy individuals with opportunities to escape their tax obligations. This limits the capacity of countries to raise revenue through taxation, both on their own residents and on foreign-owned capital because if used effectively, funds siphoned through tax loopholes into offshore financial centres could be used to finance vital investments in health and education. Hence Bono exiting our Emerald Isle to greener pastures and the promise of accumulating a hefty lump sum for his retirement.
I'm not even touching upon money laundering which could be also in the trillions. The offshore world provides a safe haven for the proceeds of political corruption, illicit arms dealing, illegal diamond trafficking, and the global drugs trade. Oxfam believes that an international framework for dealing with the effects of financial havens and harmful tax competition should include:
a poverty perspective; a genuinely inclusive approach fully involving developing countries in discussions; a multilateral approach to what are global problems; and strategies to help small, poor and vulnerable economies to diversify from a reliance on harmful tax practices and to comply with standards to prevent money laundering
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On 23 February 2007, The Economist published a survey of offshore financial centres (although the magazine had historically been very hostile towards OFCs). It makes interesting reading.
The question is, will the the next US President address this pressing issue and help forge a real coalition of the willing to combat poverty and Global Warming which are central to the well being of our planet and its inhabitants? The optimist in me hopes so.