Will the G20 also fail the global leadership test on transparency?

G20Lack of transparency in the global financial system is at the heart of three of the world’s most pressing problems: the ongoing financial crises, the need for tax reform and extreme poverty.

Global problems need global leadership, but the G8 group of rich countries failed to provide that when G8 leaders met in June. Now it up to the G20, when it meets in early September, to take the bold steps needed to transform the fortunes of the world’s ailing economy.

The opacity of the current system sheltered global financial managers while they mismanaged the global economy, landing it in a trough from which it is still struggling to escape. The same opacity facilitates illegal tax avoidance and tax evasion, robbing countries of tax revenue and billions of people of much needed public money. As Kevin Watkins of the Overseas Development Institute has pointed out, just one type of tax avoidance,  trade mispricing, which facilitates the shifting of profits to low-tax jurisdictions , drains more than $550 billion a year from the coffers of developing nations – five times what those countries receive in aid.

By enabling such huge transfers of money that rightly belongs to the people of some of the world’s poorest countries, lack of financial transparency widens the gap between rich and poor and entrenches extreme poverty. If these colossal sums were retained in developing regions, they could improve security, reduce hunger, increase access to healthcare and education, and improve standards of living by fuelling economic growth.

The British prime minister, David Cameron, put tax, transparency and trade on the agenda for the G8 summit in June, realizing the need for economic reform. Regrettably, the G8 leaders fell short of almost everyone’s hopes, so the search for global leadership on taxation and transparency reform has shifted to the G20, which meets in St Petersburg on September 5 and 6. Established to ensure international financial stability, this top level group will be shirking its responsibilities responsibilities if it fails to promote transparency, one of the main priorities on the summit agenda.

The G20 is not short of policy suggestions for improving global financial transparency. A new report by the OECD proposes ways of preventing multinational corporations from shifting profits to tax havens. Another report, Supporting the Development of More Effective Tax Systems, prepared jointly by the IMF, OECD, UN and World Bank, details ways of deepening international cooperation, making multinational corporations operate more transparently, and measuring tax reform progress.

The G20’s task is not easy. The opaque global financial system has been designed to protect the interests and fortunes of a tiny but very powerful elite. Some of its key tax havens are within or linked to rich and powerful countries such as Switzerland, the United Kingdom and the United States. These havens shelter the wealth of individuals and companies that sponsor political campaigns and foundations in many G8 and G20 governments.

In addition, the G20 ministers have their own national interests to advance, which may not align with those of their counterparts. But what is at stake is much larger than any single nation’s interests: the health of the global economy and the future of taxation systems that are widening inequalities.

What the G20 needs to show is collective political will. Only real global leadership will set the world’s finances in order – and G20 countries themselves, as well as developing countries, stand to gain a lot if that is accomplished.

By Solomon Appiah
Researcher at Africa Progress Panel
Source: Africa Progress Panel

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