It has been argued that the best form of development aid would be to help developing countries build and maintain effective tax policies in order to fund vital health and education programmes. Hardly headline-grabbing stuff, but it's important. Earlier this week Christian Aid tried a less subtle approach which led the Press Association to run a story under the headline Tax evasion 'causing child deaths'.
How will the money be found to realise the UN's Millenium Development Goals including the aim to halve extreme poverty by 2015, Christian Aid asked. In Death and taxes: the true toll of tax dodging, the charity concluded that:
... the necessary money, and more, is already available – if only those who owe it would pay up. We are talking about tax. This report seeks to expose the scandal of a global taxation system that allows the world's richest to duck their responsibilities while condemning the poorest to stunted development, even premature death.
The authors explained:
This is in part to do with super-rich individuals. It is also to do with governments, including the UK government, who have let this situation develop and persist. But it is mostly about the world's transnational corporations wielding their enormous power to avoid the attentions of the tax man – with devastating results.
The situation is stark and urgent. We predict that illegal, trade-related tax evasion alone will be responsible for some 5.6 million deaths of young children in the developing world between 2000 and 2015. That is almost 1,000 a day. Half are already dead.
This is a stark and worrying message, although Christian Aid is not the first movement to link tax evasion and poverty.
The Guardian had Tax evasion 'costs the lives of 1,000 children a day' and the Financial Times ran the story Evasion drains cash from poor, says charity. But The Times, the Daily Telegraph and the BBC news website appear not to have mentioned the report. Perhaps the editors decided that Christian Aid's claims were just not credible – the claim that tax evasion has been already responsible for the deaths of almost 3m children seems, on the face of it, far fetched.
I suspect that it is an over-simplification – something that campaigners are sometimes accused of doing in order to get their message across. I need to read the report's 60 pages before I go further, but I am certain of this – this is a report that cannot be dismissed out of hand. Some critics were quick to challenge the link between tax evasion and poverty. In The Spectator Blog, Fraser Nelson declared in Do taxes saves lives? that the authors were saying that:
... companies reducing their tax liability – legally* or illegally – are actually killing people in so doing.
* The report does deal with (legal) avoidance as well as (illegal) evasion. But the estimate of 5.6m deaths is based on activity that the authors describe as two particular kinds of evasion, "transfer mispricing and falsifying invoices".
Nelson wrote:
Tax doesn't save lives. Trade does. There is a long, ignoble history of aid programmes taking money from poor people in rich countries and passing it to rich people in poor countries. And if British tax dropped to American levels then British philanthropy may rise to American levels. And who knows how more lives would be saved that way?
Economists will argue for ever and a day about whether high or low taxes are the solutions to poverty. I am not going to try to deal with that here. But I think there is an obvious link between tax evasion and poverty in developing countries – if governments are in fact being deprived of the capacity to raise and maintain adequate revenues for investment in infrastructure and social programmes, then more international action is required to give them that capacity.
It is easy to over-simplify the link, a point which Alex Cobham, a policy manager at Christian Aid and a co-author of this week's report, articulated in a 2005 working paper titled Tax evasion, tax avoidance and development finance:
... the importance of tax evasion and tax avoidance for development are evident ... It is not however possible to make a simple connection between taxes paid and the availability of funds with which to finance development. To begin to address the question of how tax evasion and avoidance impact on development, significant analysis is required.
This can be seen by considering the following questions:
- Imagine a poor country in which 40% of economic activity is completely untaxed: what would be the impact (on economic activity, growth, investment and employment; on government revenues and social spending; on poverty, inequality and development) if government was suddenly able to make such avoidance completely impossible?
- Or imagine a rich country offering corporate subsidies in the form of tax loopholes regarding offshore business registration: who would gain and who would lose if this was declared illegal?
At first glance, this week's report does not make the same point but the methodology may well have allowed for it. I'll return to the report when I can.
In the meantime ... I have come across three statements this week that indicate how the tax debate has moved on, and I reproduce them here without comment:
Vanessa Houlder in the FT, on talk of a "corporate exodus" from the UK:
Politicians fear loss of jobs and tax revenues when companies move their headquarters. But their moral indignation cuts little ice with multinationals whose ties with their home countries have diminished because of international expansion and cross-border mergers.
A Cayman Net News editorial:
This latest report may prove to be particularly damning in that it equates the tax revenues siphoned off by or through tax havens with mortality rates amongst the poor in developing countries. Sooner or later more people are going to draw the parallel between the high standard of living enjoyed by Cayman residents with the grinding poverty found in other less well off countries that may be exacerbated by tax avoidance and/or evasion facilitated by the Cayman Islands ... We therefore wonder what, if anything, is being done to change the global perception of the Cayman Islands in the face of this mounting criticism and negative reporting.
My employer's parent company Reed Elsevier's recent corporate responsibility report said (emphasis added):
In 2007, RE's income tax contribution for our combined businesses was £243 million and, in addition, RE collected several hundred million pounds in other taxes. We believe taxes are an important way in which large companies contribute to the communities in which they do business. RE is regarded by fiscal authorities as a responsible corporate taxpayer that complies fully with the law while ensuring an appropriate balance between its responsibility to shareholders and society.
And CAFOD, the Catholic relief and development agency for which I am a volunteer, published a statement on businesses and the Millenium Development Goals this week – more on this soon.
