Statement by George Papandreou, President of Socialist International (SI) on Tax Evasion
The SI has repeatedly called for international regulation, which will stem types of global financial activities that have led to tax evasion.
The recent media investigation of this phenomenon comes as a resounding confirmation of our position. In 2008 we created the Commission on the Global Financial Crisis. This Commission highlighted, amongst other issues, the lack of effective international regulation and implementation mechanisms to stem tax avoidance and stop tax evasion.
Tax havens and offshore financial centres are complicit in undermining and corrupting national tax regimes and onshore regulation.
The result is a shift of the tax burden away from capital and onto labour, and a dramatic rise in income and wealth inequality.
This illicit concentration of global wealth has further contributed to the corruption of democracies around the world as élites escape their responsibilities with impunity. It has undermined democratic institutions by capturing politics through powerful lobbies, media acquisition and concentration or even other corrupt practices. Countries facing necessary fiscal adjustment programs are punished as the burden of adjustment falls squarely and unjustly on the weakest parts of our societies, who diligently pay their taxes. This further erodes confidence in our democracies.
The scope of the problem is outstanding. According to the ‘Tax Justice Network’, “assets held offshore, beyond the reach of effective taxation, are equal to about a third of total global assets. Over half of all world trade passes through tax havens. Developing countries lose revenues far greater than annual aid flows. We estimate that the amount of funds held offshore by individuals is about $11.5 trillion – with a resulting annual loss of tax revenue on the income from these assets of about 250 billion dollars. This is five times what the World Bank estimated in 2002 was needed to address the UN Millennium Development Goal of halving world poverty by 2015. This much money could also pay to transform the world’s energy infrastructure to tackle climate change. In 2007 the World Bank has endorsed estimates by Global Financial Integrity (GFI) that the cross-border flow of the global proceeds from criminal activities, corruption, and tax evasion at US$1-1.6 trillion per year, half from developing and transitional economies. In 2009 GFI’s updated research estimated that the annual cross-border flows from developing countries alone amounts to approximately US$850 billion – US$1.1 trillion per year”.
The SI has demanded immediate action from international institutions, the UN and the G20, to promote good governance and create a regulatory framework. What is needed are both incentives and rules that support effective action against tax havens or secrecy jurisdictions. The SI supports measures that enhance transparency, as we oppose secrecy in international finance. Secrecy fosters insider trading, market rigging, tax evasion, fraud, embezzlement, bribery, the illicit funding of political parties – and much more. It also undermines the workings of effective markets.
We also support efforts to tackle harmful ‘tax competition’. Financial liberalization has increasingly allowed companies to shop around for jurisdictions to escape tax and regulation. Tax havens are now intensifying competition between jurisdictions on tax and regulation in a beggar-my-neighbour scramble to attract international capital, undermining already weak regulation of public companies and stock exchanges. To date, the efforts to tackle the above issues have been feeble, and the amount of wealth offshore is growing exponentially.
Tax revenues are the bloodline of the social contract in our societies. Tax evasion therefore undermines this social contract and with it the capacity for our societies to maintain social cohesion. The results are more often than not, extremism, racism and xenophobia. In this spirit the SI has supported progressive taxation as well as new forms of taxation such as the Financial Transaction Tax and taxes on emissions that contribute to global warming (ex. Co2).
While it is obvious that global regulation is more than due, I believe that the European Union cannot wait. From my personal experience as Prime Minister of Greece, I was the first to realize that we needed to overhaul our tax system. And much has been done in my country.
But I also highlighted in many meetings of the European Council that Greece alone could not tackle the issue in any realistic way. The European Council has drawn up conclusions in this spirit. However, what we now need is not lip service but action. Expecting this problem to be dealt with only if regulation and action is taken at the global level, is simply an excuse to avoid facing the issue. If the EU steps up and takes action, it will become an example to the world and will put pressure on international bodies for further effective action.
The SI is encouraged by the fact that tax evasion, fraud and havens are officially on the agenda of the European Council. We urge the European Council to make good its past pledges. It is a matter of concern to every citizen, for growth, social cohesion, environmental standards, equity and justice.
It is urgent for restoring trust in our democracies.