Tax evasion, by both individuals and corporations, is the story of the moment, and it’s a global one. In Australia, the Tax Justice Network estimates corporate tax avoidance (we’ll come on to the evasion/avoidance distinction shortly) by the top 200 companies at Aus$8.4bn, prompting a Senate inquiry. The same thing is happening in China, especially as regards the tax location of multinationals. Meanwhile, in Greece, clamping down on tax avoidance and evasion is a core plank of the new Syriza government. Whilst in the UK there has been a huge row this week about the activities of HSBC’s Swiss subsidiary in promoting tax avoidance.
The figures involved here are eye-watering. According to a 2011 estimate, globally tax evasion amounts to $3.1trillion or 5% of global GDP. This matters for all sorts of reasons, but most obviously because of the context of government deficits, which of course represent the difference between what governments spend and what they take in tax. It is these deficits that drive the case for the Austerity economics that characterises the fiscal policies of many countries. Such policies proceed on the basis that the problem is excessive expenditure, when what really drives deficits (apart from the cost of rescuing failing banks) is the erosion of the tax base in many countries.
As an adjunct to that, it is also remarkable how political discourse has prioritised cracking down on welfare fraud ahead of cracking down on tax evasion and avoidance. I give some figures for this, as regards the UK, in the book (p.118), but to update them – for 2012/13 HMRC, the UK tax authority, says that there was £1.2bn of fraudulent welfare claims but £4.1bn of tax evasion and £3.1bn of tax avoidance.
So what about this issue of tax evasion versus tax avoidance? In the book (p.128n5) I offer the standard distinction – that avoidance is legal and evasion illegal. But that is extremely simplistic. What is legal and what is not, within complex tax regimes, is always a matter of interpretation and negotiation, not an iron-clad line. HMRC eschews a definition but offers some ‘signposts’, reflecting the haziness of the concept.
One of those accused of tax avoidance this week in the UK – the splendidly named hedge fund plutocrat Lord Fink - opined that ‘everyone does it’. What he meant is not clear, but on internet discussion board the frequently made point is that many ordinary people make use of tax-exempt savings accounts (called ISAs in the UK) and so in this sense are tax avoiders. This of course is nonsense. Such tax accounts were created by government legislation to encourage saving, and account holders are using them for the purpose intended. Tax avoidance means finding ways, legal in themselves, to exploit tax advantages unintended by lawmakers. Now that is a hazy area – for who can say for sure what those intentions were – but it certainly is not hazy with respect to ISAs because they were explicitly set up as a tax free route to saving. Similarly, charitable gifts in the UK are tax exempt so that the beneficiary can receive the basic rate tax and the donor the balance of any higher rate tax. Again, exactly as designed. It is pure sophistry to call such things tax avoidance.
This issue of tax feeds into many others I’ve discussed on this blog, especially inequality. Within these, one fundamental issue is how economic globalization has not been accompanied by a globalization of politics and regulation. This disjuncture appears in debates about labour standards, immigration and, indeed, tax. In relation to immigration, I’ve written about the contrast of cosmopolitans and locals, and this can be seen in the tax debate, too. Cosmopolitans like Lord Fink see tax avoidance as just what everyone does, reflecting a world of trust funds a million miles away from that of locals. Similarly, there is a temptation to see privilege in local terms – posh judges and snooty civil servants – rather than those of global financial elites.
In the current debates about tax evasion and avoidance there is a moment of possibility – I don’t put it higher than that – of enacting a more realistic conversation about global governance and of the irredeemable interconnection between national polities and the global economy. Meanwhile, in a little-reported move, in Croatia the poorest have had a debt write-off – a local solution to a global issue which some economists, such as the Australian Steve Keen, see as the only way forward: the idea of a ‘debt jubilee’. Now that, truly, would be something that everyone does.