Over 300 economists tell world leaders to end era of tax havens

As world leaders meet in London on Thursday May 12, 2016 at the Anti-Corruption Summit to be hosted by British Prime Minister, David Cameron, more than 300 of the world’s economists have written a letter asking them to “make significant moves towards ending the era of tax havens.”

The economists including Jeffrey Sachs, Angus Deaton, Ulrich Volz and Elena Granaglia argue that the existence of tax havens does not add to overall global wealth or well-being – “they serve no useful economic purpose. Whilst these jurisdictions undoubtedly benefit some rich individuals and multinational corporations, this benefit is at the expense of others, and they therefore serve to increase inequality,” they wrote.

The economists arguing further and citing the Panama Papers, said as the Papers and other recent exposés have revealed, the secrecy provided by tax havens fuels corruption and undermines countries’ ability to collect their fair share of taxes.

“While all countries are hit by tax dodging, poor countries are proportionately the biggest losers, missing out on at least $170 billion of taxes annually as a result,” they said.

As economists, they wrote, citing their differences, “we have very different views on the desirable levels of taxation, be they direct or indirect, personal or corporate. But we are agreed that territories allowing assets to be hidden in shell companies or which encourage profits to be booked by companies that do no business there, are distorting the working of the global economy. By hiding illicit activities and allowing rich individuals and multinational corporations to operate by different rules, they also threaten the rule of law that is a vital ingredient for economic success.”

They called for lifting of the veil of secrecy surrounding tax havens by calling for new global agreements on issues such as public country by country reporting, including for tax havens.

“Governments must also put their own houses in order by ensuring that all the territories, for which they are responsible, make publicly available information about the real “beneficial” owners of company and trusts,” they said.

They pointed out to the UK, indicating that as a country that has sovereignty over around a third of the world’s tax havens, it is uniquely placed to take a lead.

“Taking on the tax havens will not be easy; there are powerful vested interests that benefit from the status quo. But it was Adam Smith who said that the rich “should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.” There is no economic justification for allowing the continuation of tax havens which turn that statement on its head,” they noted.

By Emmanuel K. Dogbevi

THE LETTER

Dear world leaders,

We urge you to use this month’s anti-corruption summit in London to make significant moves towards ending the era of tax havens.

The existence of tax havens does not add to overall global wealth or well-being; they serve no useful economic purpose. Whilst these jurisdictions undoubtedly benefit some rich individuals and multinational corporations, this benefit is at the expense of others, and they therefore serve to increase inequality.

As the Panama Papers and other recent exposés have revealed, the secrecy provided by tax havens fuels corruption and undermines countries’ ability to collect their fair share of taxes. While all countries are hit by tax dodging, poor countries are proportionately the biggest losers, missing out on at least $170bn of taxes annually as a result.

As economists, we have very different views on the desirable levels of taxation, be they direct or indirect, personal or corporate. But we are agreed that territories allowing assets to be hidden in shell companies or which encourage profits to be booked by companies that do no business there, are distorting the working of the global economy. By hiding illicit activities and allowing rich individuals and multinational corporations to operate by different rules, they also threaten the rule of law that is a vital ingredient for economic success.

To lift the veil of secrecy surrounding tax havens we need new global agreements on issues such as public country by country reporting, including for tax havens. Governments must also put their own houses in order by ensuring that all the territories, for which they are responsible, make publicly available information about the real “beneficial” owners of company and trusts. The UK, as host for this summit and as a country that has sovereignty over around a third of the world’s tax havens, is uniquely placed to take a lead.

Taking on the tax havens will not be easy; there are powerful vested interests that benefit from the status quo. But it was Adam Smith who said that the rich “should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.” There is no economic justification for allowing the continuation of tax havens which turn that statement on its head.

CASE STUDY: MALAWI

Tax revenue that should be helping to fund public services like healthcare and education in Malawi and other poor countries is disappearing at an alarming rate. It’s estimated that Africa loses around $14 billion in tax revenues annually – enough money to pay for healthcare for mothers and children that could save four million children’s lives a year and employ enough teachers to get every African child into school.
In Malawi, it’s impossible to get a full picture of the scale of tax dodging. However, Oxfam calculated that the lost tax revenue from the money revealed to be held by Malawians in HSBC accounts in Geneva in last year’s Swissleaks scandal could pay the salaries of 800 nurses for one year.

Half of Malawi’s 16 million people live in poverty. The health system is seriously under-resourced with shortages of staff and vital medicines. On average there are just three nurses for every 10,000 people. Public spending per primary-school child is among the world’s lowest. Recent cuts to government budgets are making the situation even worse for the poorest who have no way to pay for private clinics and schools.

See a full list of the signatories here.