The research the Tax Justice Network has published this morning on tax evasion is, I think, shocking.
The full report is here. I've posted a summary table of tax evasion for 145 countries, here.
The real question is why does this matter? What's the problem with the UK losing £69.9bn a year to tax evaders? What's the problem with Italy losing €183bn a year as a result of its 27% shadow economy - a shadow economy of the same size as that in Greece and more than twice the size of that in the UK?
The answer is that it matters for three reasons. The first is that we wouldn't have a world economic crisis now if we hadn't had tax evasion. The current crisis focuses on the Euro. Italy is at its epicentre. It has external debt of €1.9 trillion. If only it had suffered the UK's rate of evasion in the last decade then its deficit would be less than half that sum now. The same would also be true for Greece, and only slight less so for Spain. In other words, if tax evasion in these countries had been taken seriously and been tackled in these countries we would not have a Euro crisis today. That's how important tax evasion is.
Something similar could be said for the UK. The USA has an evasion rate about two thirds that of the UK. If we had reduced our tax evasion rate to US levels in the last decade we might owe £200 billion less in debt now. Alternatively, cuts of more than £20 billion a year could be avoided in the UK economy now with our debt still being tackled at the current rate. That could prevent most of the current stress in the NHS; sixth formers would still have maintenance allowances and we might not be facing a national strike next week. That's how important tax evasion is. We wouldn't need cuts if we tackled it.
Perhaps as important as either of those is, however, the long term impact of tax evasion. When tax evasion is widespread, and that's obviously true in Greece and Italy but it's also becoming the case in the UK too, then honesty goes out of the window. No one knows who to trust. No one can succeed running an honest business. Corruption becomes endemic. And with that all prospects for investment in growth, wealth creation, public goods, our future, the elderly, the young and the disadvantaged disappear too. In other words, tax evasion creates poverty.
That's why tax evasion matters.
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I wonder whether you have seen this blog
http://www.golemxiv.co.uk/2011/11/debt-or-taxes-the-battle-fo-our-time/?utm_source=rss&utm_medium=rss&utm_campaign=debt-or-taxes-the-battle-fo-our-time
It’s perspective is rather different from yours but you might welcome it.
Very good
Tweeted
And all the while this tax dodging is going on (some of) the self-satisfied “residents” of the Crown Colonies write about their leisurely pace of live and low crime environment …
Meanwhile their convoluted tax evasion vehicles wreak death and destruction in other parts of the world
Selfishness and greed characterize these three islands
And all are as obnoxious as each other ….
I think you should have stressed the (some of) more as most of the so called self satisfied residents of Jersey are anything but.
We pay very high personal tax
We pay goods and service tax on every thing we buy (some of which still carry VAT)
We pay tax on food (can pay up to £1.70 for bead 1.09 for milk)
We have property thats more expensive than London (with lower wages)
We have rents on par with London (with some of the worst tenants rites in the world)
We have have a team of gangsters sitting in goverment who do exactly what the banks tell them to
I for one do not feel very self satisfied
I think it would be better to direct your insults to the people who deserve them so Mr Premier shareholder group the next time you walk into your bank to collect your dividens you can start talking selfishness and greed to them
Gunwan,
I have been trying to tell the good people of the Isle of Man – which also has team of gangsters sitting in government at the beck and call of the financial service industries – that they’ve been conned and should revolt. But on the whole few of them (at least among those who post comments on websites) agree with me. It seems that the majority feel that the crumbs they pick up from the rich man’s table are enough to stop them from rocking the boat – crumbs which the elite no doubt take care to provide sufficiently for them to be kept in power – as they mostly were at the last election. I suspect it’s similar in Jersey. Otherwise, why do the same gangsters keep getting elected? Jersey is after all a democracy. So the majority must be at least satisfied with the status quo, if not ‘self satisfied’?
I think you are somewhat unfair on the UK. The USA (8.6% shadow economy) is a big outlier in having such a small shadow economy (why is this by the way ?). The UK’s 12.5% is significantly less than France (15%) or Germany (16%).
In fact the only major European country with a lower shadow economy than the UK is Switzerland (8.5%). Which again seems somewhat low considering how much of its banking business is facilitating shadow economies in other countries.
So we’re as efficient as it is possible to be?
Have you noticed HMRC’s successes of late? Please pull the other one
No one is as efficient as they could be.
However the UK ranks 5th out of 145 countries. That strikes me as a decent performance.
And, as I said, I’m surprised the methodology allows Switzerland and Luxemburg (9.7%) to record such low levels seeing as their banking & wealth management industries are so large and activities questionable.
This is about domestic tax evasion
Those countries steal other people’s tax
And the UK is not 5th….it’s 9th highest on tax evaded
You’re happy with that?
The UK is 5th on the Tax Justice Network figures.
Switzerland 8.3%
USA 8.6%
Luxemburg 9.7%
Japan 11.0%
UK 12.5%
As I said, room for improvement, but the UK does do significantly better than our peers.
That’s a shadow economy ranking
It’s not a ranking of tax lost
Sorry, left out Austria. 9.7%
I’ve just had an eye operation and can’t read tables of numbers very well.
It makes more sense to measure tax lost as a percentage of GDP otherwise you will obviously just have the biggest economies in the world topping the list of tax lost even if they are highly efficient at collecting tax.
And the chart didn’t have those figures, so size of shadow economy is good substitute.
Also it removes need to adjust for overall level of taxation. A low tax country will have less tax evaded (as evading a 50% CGT regime evades more tax than evading CGT in a 5% tax regime).
Anyway, even in absolute terms of tax evaded, the UK loses less tax than our G7 peers. Doesn’t that show we, and the much maligned HMRC, must be doing something right ? Or at least better than other jurisdictions ?
Which doesn’t mean I don’t support the actions of you and others to crack down on tax havens/evasion etc.
I agree, we’re better than some
That does not mean we have reason to be complacent, at all
It could be so much better
Murphy – read your entries above. Within a few minutes you write that “this [data] is about domestic tax evasion”, followed by “this is a shadow economy ranking, it is not a ranking of tax lost”.
What exactly is this data? I can smell some very sloppy statistical work here.
Read the report
And for heaven’s sake read things in context
One comment related to the underlying data
The second to the way I’d used it
But in your great desire to deflect from the issue of tax crime you seek to be a semantic pedant – and only by quoting wholly out of context
Do it again and I’ll simply delete you as a time waster
Why is the tax evasion rate in the US lower than it is in the UK?
How about a tough IRS?
I suspect it’s the biggest reason
So is it that the IRS just simply do their job better than the HMRC? or are their policies which allow this to happen?
Policies
See my latest blog
So if we get this right the only countries that have shadow economies representing less than 10% of their respective GDPs are:
– Austria
– Luxembourg
– The United States, and
– Switzerland
closely followed by:
– China (Hong Kong), and
– Singapore
So the countries that most guarantee privacy, offer the highest protection from government interference in private financial matters and consistently resist the drive for multilateral exchange of information are those that are ALSO the most successful at limiting the size of their shadow economy and mitigating tax evasion.
This is an EXCELLENT piece of research Murphy. We have been telling you this for years, but it is great to see that you have finally reached these conclusions on your own.
What it says is stealing other people’s tax revenues is a way of limiting domestic tax evasion
One crime or another then
That seems to put it in a nutshell: steal from others and look after number one.
Is that some sort of joke?
Isn’t it a bit like saying that East London was a safer place when the Kray twins were carving people up?
I’m not sure what your argument is here Ted? You’re saying that those countries that legalise tax avoidance have the lowest levels of illegal tax avoidance? Well deducted.
I would imagine legalising drug use would likewise make illegal drug use quite difficult.
The problem is that the behaviour remains
Is there any reason why we should not treat these tax evaders in the same way as we treat those other tax evaders whom we choose to characterise differently: that is, drug traffickers? Any reason why the provisions to confiscate wealth they cannot prove was not the proceeds of illegal drug dealing should not equally apply to all tax evaders, who would be required to show where and how their wealth was taxed, in the same way? Why is the burdern of proof for one group of tax dodgers displaced on to the state for another?
I agree with you
Those who actively assist tax evasion by others – the financial advisers, lawyers, accountants, bankers who devise and promote profitable schemes to do exactly that – should also be penalised (as I believe are those who facilitate money-laundering of the proceeds of illegal drug dealing).
anrigaut – classic schoolboy error – dont confuse evasion with avoidance, tehy are totally different things. the article is about illegal evasion – not normally promoted by lawyers or accountants who would lose their practising certificates for doing such a thing.
You’re pushing the bounds of crediblity
Offshore professionals have turned a blind eye to evasion for decades
Load of smug twaddle.
Bankers, lawyers and accountants are up to their necks in this.
And nobody does a thing about it.
Why?
No regulation!
Simples. Welcome to the crime infested world of tax havens!
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The rate of Tax evasion is not just a function of the effiiciency or otherwise of the Tax Authorities and the legislative framework of individual countries. For example some of the harshest regimes in the world for tough tax legislation have the highest rates of evasion.
( I have worked there). A more important factor is the culture of the ordinary taxpayer.
The UK, in the past, has had a very reasonable taxpaying culture. It is not a myth for example that in Italy companies have three sets of records (again I have seen).
But what has happened is for example in the UK is that people’s culture has been changing for the worst,probably because they can perceive that HM Revenue & Customs has weakened and tax evasion is rife -and now shown to be rife by yourself .
It would help to set out and agree a set of essential characteristics of avoiders. For starters I’d suggest:
– willful refusal to abide by basic rules which benefit society in general;
– refuge in extreme legal interpretation when fingered;
– connections with unscrupulous “professional” advisors.
– trolling
Apart from the last, all characteristic of mafia-style criminal behaviour in general.
[…] Richard Murphy: Why Tax Evasion matters so much […]