Friday, June 21, 2013

top lives off the yield of the bottom: tax havens and the men who stole the world...,

resilience | In his influential book Treasure Islands: Tax Havens and the Men who Stole The World Nicholas Shaxson tells us that if you thought the open face of global capitalism was bad enough, the murky and secret world of tax havens is even worse. If this comes as an introduction to the offshore industry the book lets us know that we should have started worrying, no less been doing something about tax avoidance for a long time now.

Jonny Gordon-Farleigh: Your book Treasure Islands: Tax Havens and the Men who Stole the World was first published in 2010 and has since been an extremely important contribution to our understanding of a secret, hidden and misrepresented part of our global economy: tax havens. What has happened since then in terms of the scale and complexity of tax avoidance schemes and how have governments responded?

Nicholas Shaxson: That’s a big question. I would say that different things have happened in different countries but what has been a common factor in most has been that public deficits and austerity measures have focused minds on tax revenues. There has been a real change in the public mood and receptiveness to the issue of tax avoidance and that it’s a problem more serious than we thought. In the Go-Go years before the boom, in places such as the UK, the attitude was “I’m alright, Jack,” and people didn’t seem to worry about it. Now, the general public are also realising that tax havens are much more central to the global economy than anyone had previously imagined. They had previously been seen as an exotic sideshow to the main event but, increasingly, the public is realising that tax havens are at the heart of the mainstream global economy. On some measures half of all cross-border trade is conducted on paper through tax havens. Tax havens are not so much about Mafiosi and drug dealers, even though there is plenty of that still about, but most fundamentally about banks and financial intermediaries. That’s the context.

Now politicians, if we take the example of the UK, are being led by the public mood. It’s remarkable to see a Conservative prime minister making such statements about tax avoidance, which had previously been considered legal and therefore little wrong with the practice. The shift in public mood means politicians are being forced to condemn tax avoidance and are certainly making the right noises. Also, the OECD — a club of rich countries that had previously jealously protected this awful system of secret information exchange that is very favourable to tax havens and corporate taxation that is very favourable to tax avoiders — now suddenly seem much more open to looking for real alternatives. A closed door is now open, at least a bit. This has not yet translated into any serious policies but there are some incremental changes that have been made such as openings into Swiss bank secrecy, even though there’s still a long way to go there.

On the other side of the equation, though, the offshore system has been growing under its own momentum for decades. It is a self-reinforcing process where countries compete with each other to offer the best tax loopholes or secrecy facilities. This race-to-the-bottom dynamic is still firmly in place. So there are two opposing forces: one is the offshore system pushing ahead through its own momentum, and then the public mood pushing in the other direction. I wouldn’t say anything more than that things are beginning to change. A true rollback of offshore abuses needs much more sustained public pressure.