This piece was originally published on Scottish international affairs site Cable. Unfortunately, Cable has since closed and the published article is therefore unavailable. Below is the original, unedited version of the same article.
It’s not news that we live in a time of extreme global inequality. The richest 1% have more wealth than the rest of the planet combined, the most recent of Oxfam’s annual inequality figures tell us. Eight men – some of the most familiar amongst them Bill Gates, Mark Zuckerberg and Warren Buffett – own the same wealth as the 3.6 billion people who make up the poorest half of the world’s population. Money and power still reign and the world is taking notice, with extreme inequality and its impacts in a variety of guises central to many analyses of recent political earthquakes 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.
But as stark as these figures are, the reality may be even worse. While 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 by illustrating the staggering amounts of money hidden in offshore tax havens. A 2017 study by 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 consequently its impacts 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 staggering levels at which the super-rich have accelerated global wealth inequality by secretly funnelling billions of pounds worth of wealth offshore.
To truly illustrate the value of tax justice as a global development approach, it’s worth clarifying at this point exactly what it meant by tax injustice. Unfortunately its very nature necessitates a world full of secrecy, double meaning and blurred lines, and clarity 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. Tax havens, meanwhile, can straddle both sides of the legal division: while no official definition for the term exists, it 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 away from the haven. 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, though, 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.
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, as well as having the potential to confront deep-rooted structural inequality rather than simply accounting for its symptoms. Tax justice refers broadly to fairer taxation systems – encompassing both legal avoidance and illegal evasion activity, and the use of tax havens – and also to the growing global movement campaigning for transparency and reform around tax affairs globally. It’s an issue that anyone concerned with tackling global inequality should be prioritising quickly: 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 they did collect, 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 generation income.
Given the far-reaching implications of tax justice, it can also be seen as a key force in confronting other issues that are inextricably linked with extreme global wealth discrepancies, such as gender inequalities. 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 are most likely to bear responsibility for collecting water and thus experience the health impacts of long and strenuous journeys, as well as a lack of time left over to attend school or gain 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, and many therefore 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. “Discriminatory national tax laws, tax havens, and tax cuts for the rich” then, as noted by the Global Tax Justice Campaign, “protect capitalism and male privilege, and intensify gender inequality.”
A human rights analysis, too, can 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 on resources to deliver human rights commitments around access to food, water and shelter amongst other key entitlements; a principle 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.
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. While there is undoubtedly a role for foreign aid – not least in recompensing for the devastation inflicted on developing countries by the west – tax remains the most sustainable and beneficial form of income generation for development: the Tax Justice Network, for example, report that tax revenue in Africa is worth ten times the value of foreign aid. Crucially, though, aid is also politically contingent, often ringfenced, and can construct a relationship in which there is an expectation of gratitude, or where government leaders feel accountable to foreign governments more than 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.
The issues we face here are not those of accident, neglect or unfortunate by-product but 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 one of political will. While government leaders and formidable institutions remain entangled with the power that tax injustice protects, though, they are unlikely to easily take meaningful action against it: the Panama Papers, for example, implicated 143 politicians and twelve national leaders – including then UK Prime Minister David Cameron – and numerous leaks and whistleblowers have highlighted the enabling function that the ‘big 4’ financial services firms perform in avoiding and evading tax.
There is a democratic benefit that comes with progressive tax measures and fiscal justice, though, and its one which illustrates yet further how key this issue is to global development and equality. 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, increasing the likelihood of citizens holding their leadership to account. This 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’s clear, then, that it would seem 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, for example, saw some of the largest protests in Iceland’s history with the country’s President resigning as a result, while lobbying by ActionAid saw the UK government commit to action on tax dodging at 2013’s G12 summit. Organisations such as the Tax Justice Network continue to do great work exposing tax scandals and pushing for alternatives, while their campaigning sister organisation 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, with the world benefitting immeasurably as a result, if only those of us committed to global inequality ensure it is kept at the top of our agenda.