Editor’s blog – tax avoidance can only be addressed at a global level

By Dean Carroll

Across the continent and even in the United Kingdom – Europe’s spiritual home of capitalism and untrammelled free markets – governments are using a large rhetorical stick to beat up on corporate behemoths involved in tax avoidance schemes. In reality, little will happen in terms of policy changes or legislation and the large multinationals will continue to be favoured when it comes to government contracts being awarded.

The Brits, like the rest of the developed world, know that if the fine words on tax avoidance were ever to turn into reality then disaster would ensue. The financial elites and oligarchs the country depends so much on to create jobs for the natives, and economic growth clusters, would simply up sticks and relocate elsewhere. In short, they have us all over a barrel.

Until the issue of tax avoidance is addressed at a global level, it will always be the sort of political football that both the left and the right kick around – in sovereign states – without actually ever scoring a goal. Back when the economic crisis first hit, the G20 made noises about tackling tax avoidance on an international scale. However, the financial ramifications of what this would mean – more tax havens in the emerging nations of the east and fewer jobs and business in the west, where managed decline is already a fact of life – soon became apparent to political leaders. As a result, the issue was quietly dropped from intergovernmental summit agendas.

Already, former tourist hotspots such as the Seychelles are reshaping their economies to accommodate offshored accounting – due to the high price of aviation fuel meaning many hotels lie empty. It seems this is the future for many island states which have seen their economic prospects ravaged by the global downturn, rising oil prices and climate change; leading to rising sea levels and desertification. You cannot blame them for exploring alternative roads to prosperity when the more ethical and traditional avenues to alleviating poverty for their populations have been eviscerated by external forces.

It is often said that tax is one of the key civilising forces in society. Indeed, without it our world would be unrecognisable and certainly a much nastier place to be. As a case in point, compare the contented but highly-taxed Scandinavians with the low-taxed but despairing Americans. It is just a shame that there are no simple solutions to the extremely difficult question of how to tackle tax avoidance in a world where globalisation is king. Competing economies remain willing to outbid each other in order to be the home of the financial elites. Until that changes, perhaps through strengthened transnational institutions, the rhetoric will remain far removed from the reality.