PWC, a threat to the world’s poor

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Sorry to bang on about the big firms of accountants this week - but their PR departments seem to be in tax overdrive mode at the moment. I advisedly say that it is the PR departments at work because the reports they are producing appear to bear no relationship to methodical research, facts, or objective analysis. To put it another way, they're pure politics.

The latest one I've read is the PWC / World Bank report that came out a week or so ago, but which I've only just read. This report is based on the PWC Total Tax Contribution methodology, which I've already discussed here and which is (if I'm being polite) fundamentally flawed. I won't be rude. Bob McIntyre has already done that for me.

Just one example of the trite methodology used might suffice. The burden of administration of tax is measured by the number of pages of tax legislation a country has, as if this is some objective measure. So they note with all seriousness that:

A first important finding to note is that the volume of primary federal tax legislation is not directly proportional to economic size. For example, the US, ranked number one in GDP terms, being almost three times the size of the next nearest economy (Japan) has just 5,100 pages of primary federal tax legislation compared with Japan's 7,200 pages. Or India, with a lower GDP ranking of 10 but which has the most pages of primary federal tax legislation at 9,000.

I should add that someone once proved that the number of storks in Denmark in spring is positively correlated with the number of births, and the two are of course entirely unrelated. So are the above statistics. This is work of the quality I would hope a poor university would reject from a weak undergraduate. To be polite, it's simple mumbo-jumbo. Such things as page size, type face, the language used, the legal system adopted, and many other elements might all be independent variables in this equation. PWC appears to let them all wash over it. One despairs of their intellectual capacity.

I'm not saying everything the report says is rubbish. It's obvious that very high tax rates force small businesses in developing countries into the informal economy. It's obvious that an efficient tax administration is advantageous to an economy. It's clear that there is a trade off between tax take and admin burden imposed on business. In other words, in all cases an efficient system design, a broad base and the elimination of both inefficiency and corruption help the tax system work. We hardly needed PWC to tell us that.

But what is more worrying is that in a report that depends on such poor methodology and which, through association with the World Bank pretends to be objective, the political rhetoric is so strong. Take this:

It is also important to note what the extra taxes are used to fund: if, for example, they are used for transfer payments, then the net impact on long-term economic growth may be negative.

No evidence is presented to support this claim that supporting the poor, the elderly, the sick or the disabled is harmful. It's just taken as a fact that it is.

Take this as well:

tax regimes with relatively high marginal rates and large numbers of exemptions and allowances tend to be less economically efficient in relation to encouraging work, saving and investment

This is presented as a statement. No evidence is offered to support the claim.

Most worryingly though PWC first offer this observation as one of fact:

Attempts to impose internationally uncompetitive tax rates on these forms of mobile capital may be particularly damaging to an economy in the long term.

They then offer this panacea for tax administration:

VAT/GST: The win:win taxation systems of the future?

When they reach their conclusion they remove the question mark. They do something else as well. Whilst noting the regressive nature of the tax in their discussion and that this problem may be eased to exempting a wide range of items from the charge to ease the burden on the poor they conclude that any successful VAT/GST (as they define it) must have the least number of exemptions possible.

The conclusion is clear. PWC want to tax the poor, and remove the burden from capital. There's no surprise there, but what is clear is just how profoundly political these reports are and just what a threat PWC and firms of their ilk pose to the poor of the world.