2011 May » Tax Research UK

Clinton endorses the tax justice agenda

Corruption, Development, Tax Havens, Tax justice 4 Responses »

May 262011

Hilary Clinton made an extraordinary speech to the OECD on aid today. It went far beyond anything I might have expected. The whole thing is here. The important highlights are as follows, in my opinion:

There are many urgent issues we could discuss today, but I want to focus on two. First, partnering with developing countries on reforms in three interconnected areas – taxes, transparency, and corruption – because focusing on these three will give us the tools needed to enable more countries to fund more of their own development. And second, doing more to support women as drivers of sustainable economic growth.

I apologise that I’ll only concentrate on the first here.

Let me begin with the reforms. This is a very high priority for me. I’ve spoken about the importance of countries and international organizations like the OECD working together on taxes, transparency, and corruption many times in many places, from Pakistan to Ecuador.

Why? Because corruption, lack of transparency, and poorly functioning tax systems are major barriers to long-term growth in many developing countries. Corruption stifles entrepreneurship and it siphons funding away from critical services, hurting the people who rely on those services. Poor transparency makes it difficult if not impossible to determine how governments raise and spend their funds, and therefore, how to hold governments accountable.

So , and let’s not beat around the bush about it, Hillary Clinton is saying that country by country reporting is necessary. And she’s right, of course.

She’s right about this too:

Weak tax systems rob states and citizens of the resources needed. Why? Either because the taxes are not levied at all, or because it’s very easy for people to avoid paying them. Nobody likes paying taxes, but the countries around this table represented know that in the absence of funding public services, it’s very difficult to achieve the kind of outcomes for prosperity, growth, opportunity that we seek.

It’s good to hear someone saying in an international arena saying that tax is a good thing. It’s a statement of the glaringly obvious, and yet it is not said often enough.

Nor is this:

And let’s be very clear – many wealthy people in low-income countries avoid taxes by hiding their money offshore, an outflow that by some estimates comes to more than $1 trillion a year.

That is a direct endorsement by Hillary Clinton of the work undertaken by Task Force on Financial Integrity and Economic Development member Global Financial Integrity. Tax Research LLP is delighted to partner GFI in the Task Force.

Next she went on to endorse automatic information exchange for tax (tax havens, take note):

Now, to some degree, it is logical that low-income countries would raise less revenue internally than others. After all, some of the most common sources of income in developing countries are very difficult to tax, and building strong public institutions is a challenge for any nation. But we also have to acknowledge that wealthy countries share responsibility, so that is why, for instance, the United States is making it easy for other governments to know when their citizens are keeping money in American accounts.

We all have an interest in solving these problems together, to empower governments to collect precious revenues they use to build roads and power lines, to open schools and train teachers, to provide healthcare and invest in all the other drivers in economic activity. Corruption, lack of transparency, and poorly functioning tax systems not only deprive government of revenues; they inflict a quieter and in some ways an even more dangerous cost as well, because they corrode citizens’ trust in each other and in their government. And when those bonds of trust crumble, it becomes much more difficult for communities and countries to make progress.

I promise you, the Tax Justice Network did not write this speech.

And finally, corruption in poorly functioning tax systems put a strain on our partnerships with developing countries. All of us here are supporting development. We’re committed to doing so. And the United States will continue to lead the world in providing assistance. But let me say very openly it is difficult to ask American taxpayers to spend money abroad when the elites in the countries themselves turn their backs on their own people, especially at a time of difficult budgetary decisions. It is not hard to imagine that an unemployed worker or a struggling business somewhere in my country would wonder why we would offer our hard-earned tax dollars to help those who will not reach the social consensus to help themselves.

But this requires a crackdown on tax havens and all those bankers, lawyers and accountants who make up the offshore world that deprives developing countries of the revenues that they desperately need. And I do mean, all of them. Clinton was right, therefore, to go on in the next section to stress the importance of developing countries improving their tax systems. I could not agree more, but she did need to say a little bit more about how they are prevented from doing so by the so-called professions who seek to undermine their revenues through the operation of tax havens.

Nonetheless, the conclusion is also welcome

Other institutions including the G-20, the IMF, the World Bank, and civil society organizations like Oxfam and Transparency International have lent their expertise as well. And all of these efforts are critical and they should continue, but in the end, success will depend on more than funding and sharing expert technical solutions. It will depend on building the political will to implement them. Any kind of change will take hard work, but these reforms will also take courage. Elected leaders will have to look their most powerful supporters right in the eye and tell them, “You need to pay your fair share for the good of your country.” Budget officials will have to make their decisions public, even if it subjects them to tough criticism. And tax collectors will have to speak out against bribery and corruption. In short, behind every success story, there will be a committed group of people who refuse to accept the status quo, who stand up to entrenched interests and take on tough reforms. Without this essential leadership, technical solutions will remain necessary but unfortunately insufficient.

There is a challenge in this for the OECD. There is an even bigger one for the International Accounting Standards Board. Both need to embrace country by country reporting. The European Union is taking the lead on this.

And the OECD also needs to embrace automatic information exchange, which is possible, and deliverable.

But this was a good speech, however looked at. For those of us that have worked for many years to find solutions to poverty in developing countries through improvement in transparency and taxation systems to beat corruption, so much of which is promoted by tax havens, this was a very welcome step forward and an endorsement for all that we have asked for.

Now it is time for the politicians to deliver.

No vote of confidence for George Osborne, and yet the FT asks for more of the same

Conservatives, Economics 5 Responses »

May 262011

The FT has noted this morning:

Wednesday’s UK GDP revision shows that inflation is helping to drive the economy perilously close to recession as consumers are squeezed by rising prices, while businesses appear unwilling to pile cash into new investments, the FT reports. A toxic mix of high inflation, tax rises, slow wage rises and low confidence provoked by the government cuts is hitting consumers, driving spending down in four out of the past five quarters and leaving consumption 4.3 per cent below its pre-crisis level.

Somehow that doesn’t read like a vote of confidence for George Osborne from the FT.

They add:

A low growth forecast from the OECD also compounded the gloom over the UK, the WSJ reports. The organisation’s 2012 estimate has moved under 2 per cent since its last gauge to 1.8 per cent.

Another vote of no confidence.

And yet, despite all that the FT concludes in its own self confident style:

But the OECD warned that the Bank of England must raise rates by 0.5 percentage points by the end of 2011 to combat inflation.

Ah, so it’s neoliberals together at the end then: they might agree they’re trashing the joint, but they’re also agreed they must go on doing so.

That’s the Bullingdon way. Except in this case they’re expecting someone else to pick up the tab for their deliberately destructive behaviour, all pursuit of their own indulgent self interest.

It’s why we need politicians who say ‘No, no, no’ now. Because there is, there has to be, and there will be an alternative to this destructive hegemony.

Please don’t spin us lies Barack, we don’t appreciate them

Economics, Ethics, USA 3 Responses »

May 252011

Barack Obama in Westminster Hall today said:

In an era defined by the rapid flow of commerce and information, it is our free market tradition, our openness fortified by our commitment to basic security for our citizens that offers the best chance for prosperity that is both shared and fair.

I’m sometimes asked why I do not stand for electoral office. My wife came up with the explanation some time ago: I am really bad at lying.

So let’s call Obama’s bluff: we do not have a free-market tradition. The large companies that dominate our markets exploit monopoly power, hide profits in tax havens, and delight in the use of tariff barriers inside Europe and the USA to protect them from competition.

Opacity is the watchword of our accounting profession. That is designed to destroy economic well-being.

And note the words ‘basic security’. That’s right. For ordinary people there is, at best, basic security. But for the wealthy there is the whole force of the state to back up their property rights.

There may be prosperity, but let’s have no pretence that it is shared, or fair. It isn’t. It really doesn’t make sense to lie in politics when it is as obvious as this. So please don’t do it Barack Obama: it doesn’t increase your appeal.

Trolls, and other contemptible people

Blogging 1 Response »

May 252011

I liked this that I noted today:

It’s possible to believe that someone is completely wrong on policy while respecting his or her character. But policy aside, these are just contemptible people.

Paul Krugman, expressing a sentiment that is close to my heart about people of the type he refers to.

I make the point for good reason: neoliberals without arguments get very upset when I say that I presume that their dislike of people without wealth seems to underpin their comments. They call me all sorts of names – as Krugman is called all sorts of names. But all I’m saying, like Krugman is, is that such an attitude makes these contemptible people.

And if you don’t like that please don’t comment. Then I won’t have to disagree with you.

First it was the Elgin marbles, now they’re lining up to take away the rest of Greece’s assets

Ethics, Uncategorized 23 Responses »

May 252011

I twittered yesterday on the idea mooted in Europe that Greece might be forced to privatise national assets with proceeds forcibly passed to EU creditor nations. But it seems so shocking that it is worthy of further comment.

As the FT notes:

European leaders are pushing to impose measures that would ensure the Greek government lives up to its promise to deliver €50bn ($70bn) in privatisation proceeds, amid scepticism that Athens can carry out the sell-offs.

Officials involved in the discussions believe far more than €50bn could be raised in sales of state-owned assets, with estimates ranging from €250bn to €300bn – or almost all of Greece’s outstanding debt.

But several diplomats and officials said repeated failures by Athens to start such sell-offs have convinced them of the need to impose new conditions on the programme, including the possibility of an international agency running the divestments. “The state is not functioning,” said one senior European diplomat.

Let’s correct that: the Greek state is functioning (although it does need to collect tax). What is failing is the Euro, and the ECB and other’s approach to sanctioning states that are in recession – a process of sanctions designed to ensure that the country subject to them has no prospect whatsoever of repaying its debt.

And now we see the real purpose: the neoliberals driving this policy are happily using their positions of power to seek the destruction of smaller states with the proceeds passed to larger ones. The idea of corporate bankruptcy – of effectively appointing a receiver to sell assets at what is invariably an under value to destroy any chance that the entity remains viable and with the only consideration being the realisation of short term cash for the benefit of secured creditors irrespective of the long term destruction in value that results – is to be applied to a nation state: Greece.

I am not being melodramatic when I say wars have been fought over lesser issues. Claims over assets are almost always the starting points for wars. And this new policy proposal, that shows complete contempt for the state of Greece, those who live in it and their long term well being, all promoted in the interests of bankers, has the indifference inherent in it that leads to war.

I find this profoundly troubling: the success of the EU has been in promoting stability in Europe (Yugoslavia, which was not in membership, being the notable exception). But if this attitude prevails I cannot see that surviving. The resentment that leads to hostility will be fuelled by policies such as this where nationhood is stripped from a place; a place with a weak history of recent democracy at that.

The bankers really are going mad.

I just hope they don’t drag the rest of us down with them.

This feels eerily 1911 Balkans-ish. Have we learned nothing?

Asking the impossible of GPs

NHS 17 Responses »

May 242011

One of the ways McKinsey has decided it’s possible to save £20 billion in the NHS is to reduce the number of acute admissions made to hospitals.

Acute admissions are, of course, the emergency ones, that go through accident and emergency or straight into a medical assessment unit.

I am now aware that some Primary Care Trusts are asking GPs to reduce the number of these admissions by 20%. This is a curious target. Only 25% of acute admissions are referred into hospital by GPs. The rest of these admissions, all of whom are by definition GP patients and are therefore logged against their names, turn up in hospitals inthe back of ambulances, or are driven there by their friends or relatives when seriously ill.

To deliver the reduction in acute admissions demanded of GPs they either have to stop their referral of people who front up with heart attacks in their surgeries by 80%, or they have to ignore meningitis in children, or send people home with deep vein thromboses. Alternatively, they have to set up roadblocks that prevent ambulances carrying their patients arriving at accident and emergency units.

None of these are very likely, are they?

I wonder how much McKinsey’s were paid for this fabulous insight? And I wonder what part of the savings will result from this cut in admissions? I suspect it will be close to 0%.

This is because GPs refer people to hospitals because they are sick, not because it is fun. And they do so because they know that if they get things wrong they are likely to suffer serious consequences, including being sued, and being referred to the General Medical Council. All of those complaints procedures will, of course, remain intact despite the cuts. But supposedly McKinsey think that GPs will now take a massive increase in risk to help balance the books of the NHS.

I have a message for McKinsey and Andrew Lansley: they may be stupid, but GPs aren’t, and the rest of us should be grateful that GPs will still refer when necessary.

Disclosure: I am married to a GP

The shape of the economy to come

Economics 8 Responses »

May 242011

Carol Wilcox, a regular commentator on this blog, has the following letter in the Financial Times this morning:

From Ms Carol Wilcox.

Sir, Two years ago in this newspaper Gillian Tett (“Recovery not as easy as U, V, W”, May 29 2009) conjectured that the recovery would look like the shorthand sign for “bank” (right). And look what has happened: a sharp downturn caused by the global financial crisis, followed by a gentle upturn when the Labour government introduced some useful stimulus and now a period of flatlining, which presumably will last until the coalition’s Plan A is abandoned.

Carol Wilcox,

Highcliffe, Dorset, UK

Looks like Gillian Tett was right.

And Carol is right to point it out – there, and to draw it to my attention.

Osborne said he was going to reduce deficit – and delivers biggest ever April borrowings

Conservatives, Economics 25 Responses »

May 242011

As the Independent reports:

The Government’s deficit reduction plans were dealt a blow today after official figures revealed that last month’s borrowing figures were the highest ever recorded for the month of April.

Public borrowing, excluding financial interventions such as bank bail-outs, hit £10 billion, compared with £7.3 billion the previous year, said the Office for National Statistics (ONS).

The figure, which is higher than City expectations of £6.5 billion, will cast doubt on whether the Government can meet its target of bringing the deficit down to £122 billion this financial year.

The ONS said tax receipts fell year on year, which had been boosted to the tune of £3.5 billion a year earlier by the tax on bankers’ bonuses.

I wonder if the ONS really think the bankers don’t know that? Of course they did, and of course they included it in their estimates. The result is that this is an outright disaster for George Osborne.

This man has staked his entire credibility on reducing the deficit, and he has delivered an increase in borrowing.

This is not a one-off. This is the inevitable consequence of reducing demand, increasing unemployment, increasing benefit payments, reducing potential tax receipts and telling millions of people in this country that their services are not needed.

There is only one way out of a deficit when there is a shortage of demand in an economy. That is for the government to spend and to increase its investment in particular. So right now the government should be building infrastructure, it should be improving our flood defences, it should be building alternative energy systems, it should be improving our railways, it should be building hospitals by borrowing, it should be ensuring that every house in this country is thermally efficient, it should be building social housing, it should be investing in the skills we need the next generation to have.

It’s not doing any of those things. The result will be continuing stagnation, and increasing the deficit, and that is the exact opposite of what it said it would do.

If that is not a measure of economic incompetence, it’s hard to suggest what is.

Why cutting Northern Ireland’s corporate tax rate won’t work

Corporation Tax, Economics, Ireland, TUC 8 Responses »

May 242011

The Northern Ireland Select Committee of the House of Commons has suggested today that the corporate tax rate in Northern Ireland should be cut to 12.5% to match that of the Republic of Ireland. I wrote a report on this subject last year for the TUC and Irish Congress of Trade Unions. Entitled “Pot of Gold or Fool’s Gold” sets out my arguments in full. There are many of them. I will highlight three.

First, the chance that such a tax rate could be introduced in Northern Ireland without falling foul of EU law is remote in the extreme. And if it proved to be illegal the damage to the Northern Ireland economy as a result of the consequent uncertainty could be considerable.

Second, the Republic’s low tax offering is not just a low tax rate – it’s also a low tax base. The tax collected by any state is the tax base multiplied by the tax rate – and because both are low in the Republic then many companies operate there and pay little or no tax at all. This is something Northern Ireland could not emulate unless it were, in effect, to cede from the UK for tax purposes.

But doing that would have massive implications. First, the rest of the UK would then need to put up massive tax barriers to trade with Northern Ireland to prevent artificial tax abuse by companies really located in England, Scotland or Wales, That would be enormously harmful in terms of administrative burden to doing trade with Northern Ireland. And second, if it is assumed that the reduced tax rate will bring in increased taxes in Northern Ireland (and those proposing this idea seem to think that it will – although there is no evidence at all that the Laffer curve on which they base this idea actually exists) then that assumed increase in tax revenue has to be deducted from the subsidy now given to Northern Ireland so that it does not get a double dose of regional aid under EU law. The risk is if the assumption of increased tax is wrong – as I think not just likely but absolutely certain if the Republic’s experience is copied – then the funds available for public services in Northern Ireland will be cut severely. As a result this folly, promoted by the tax accountants of Northern Ireland for the benefit of their clients will impose real and lasting cost on ordinary people throughout Northern Ireland. And that’s a risk no one should take.

Which is why I and the trade union movement on both sides of the Irish Sea oppose this move.