The ICIJ has today revealed the biggest offshore leak since the Panama Papers in 2016. The Pandora Papers document 14 offshore professional service providers, and the way in which a mass of politicians, public officials and celebrities have utilised the offshore system to hide the true value of their wealth, and in some cases pay less tax than they owe.
These personal actions are shameful and will no doubt come under great scrutiny in the coming days, but it’s important that we don’t lose sight of one crucial fact: few of the individuals had any role in turning the global tax system into an ATM for the superrich. That honour goes to the professional enablers – banks, law firms and accountants – and the countries that facilitate them.
Every year, the world loses $427 billion in tax to tax havens – that’s a nurse’s yearly salary lost every second to the world’s wealthiest multinational corporations and individuals. It’s no coincidence that the small club of rich countries at the OECD who have held the pen on global tax rules for decades are the ones responsible for over two-thirds of the global tax abuse the world suffers every year.
A global tax system reprogrammed to prioritise the needs and wellbeing of people over the desires of the wealthiest can be our most powerful tool for tackling inequality, guaranteeing people’s human rights and protecting our democracies from the unchecked influence of the superrich. The first move towards a fairer global tax system is to take rule-setting out of the hands of a small club of rich countries and into the daylight of inclusive democracy at the UN.
Tax is about more than just money
The damage done by tax abuse goes well beyond the immediate loss of public revenues. Tax delivers the 4 Rs: revenue, redistribution, repricing and representation. When major companies and wealthy individuals cheat on their taxes, we all suffer from poorer public services. On top of that, governments are less able to redistribute and so we also suffer higher inequalities. When tax abuse defeats the repricing of public health threats such as tobacco consumption and carbon emission, we all suffer the result – and so will future generations.
But the fourth R may be the most important. The share of tax in government spending is one of very few things that is consistently associated with better governance and more effective political representation. Paying tax is a social act. When we pay tax it builds our stake in the decisions of government. That makes us more likely to hold government to account. When a government is more reliant financially on its own citizens, it functions better on our behalf. For example, when tax makes up a larger share of government spending overall, research shows that governments typically spend a higher share on public health; and that for a given level of spending on public health, the outcomes tend to be better and also more inclusive of the whole population.
So tax abuse by major companies and wealthy individuals doesn’t just leave governments with less money – it makes that money less likely to be well spent, for the benefit of all citizens. This is the real threat of tax havens from the Netherlands to Cayman and the rest of the UK spider’s web– that they rob us of effective states, and ultimately of our human rights.
Changing the way we change the rules
Ensuring that major companies and wealthy individuals pay their taxes is politically difficult – because of course these groups have disproportionate power. Major data leaks such as the Panama Papers have been crucial in raising public awareness of the scale of tax abuse, and the impunity of the perpetrators. That in turn has forced policy action, because ultimately politicians take steps not when they see the light, but when they feel the heat of public anger.
While the high-profile politicians and celebrities at the heart of Pandora Papers will be getting much of the spotlight over the coming days, it’s OECD member countries and their dependent territories that are responsible for the vast majority of the cross-border tax abuse that undermines human rights around the world.
Public outcry following the Panama Papers forced governments to adopt tax transparency measures but they stopped short of full transparency. The biggest blockers to transparency are the US, which the Pandora Papers confirms is the world’s biggest peddler of financial secrecy, and the UK, the leader of the world’s biggest tax haven network. We need full transparency so we can hold tax abusers accountable, especially when our politicians are among them.
US President Biden must match his own rhetoric on shutting down global illicit finance, and start with the biggest offender – his own country.
For far too long, the OECD itself has set the international tax rules that allow this. It’s time now to shift that role to a globally inclusive setting, and that’s why discussions about a UN Framework Convention on Tax are beginning to gather pace. That will be a key step to ensuring international tax rules and transparency that safeguard and promote human rights around the world.