The OECD encourages tax competition

Grace Perez-Navarro, deputy-director of OECD’s Centre for Tax Policy and Administration, has been speaking about the organisation's work on transparency and tax matters. She said:

"We’re not preventing it – we encourage tax competition. We like to see competition on the basis of rates, the economy, and the services that countries provide."

We have already demonstrated on several occasions (see here, and associated links, for example) that the widely propagated notion that because market competition is good, tax competition must be good too, is entirely bogus. It rests on an economic fallacy, and anyone who has given it some thought would agree. Don't listen to us, though: here are words from Martin Wolf, the Financial Times' chief economics commentator.

"The notion of the competitiveness of countries, on the model of the competitiveness of companies, is nonsense."

It should be noted that ever since the OECD launched its Harmful Tax Competition initiative in 2000, and the change of administration in the US the following year, the OECD has been back-pedalling ever since, under tremendous pressure from George W. Bush's government.

TJN's director, John Christensen, has confronted OECD officials several times in the past and asked them outright: where does harmful tax competition end, and where does beneficial tax competition begin? It is, of course, a trick question: it is all harmful, for it is an amorphous, depersonalised set of forces in the international economy which forces countries to change their laws, usually against voters' wishes. Nevertheless, no officials from the OECD have ever been able to answer his question.

TJN calls on the OECD's tax department to answer Christensen's question, providing detailed reasons why they believe they are right. We won't hold our breaths.

In fairness, and as Perez-Navarro explains, the OECD is trying - timidly, in the face of ferocious lobbying from the secrecy jurisdictions (some of which are OECD members) at least to try and roll back some of the secrecy. This is commendable, though progress has been feeble so far.

Also in fairness to the OECD, its Secretary-General, Angel Gurría, was entirely frank in giving reasons for a lack of progress. Speaking in Paris yesterday, he said:

"The OECD work was initiated by G7 Finance Ministers in 1996. The intention was to identify tax havens, list them, and apply countervailing measures quickly, but tax havens persuaded us to move to a more co-operative approach."

And we also welcome these words from him, speaking at a conference on tax evasion:

"The OECD has been undertaking exhaustive (and exhausting) studies on defensive measures. We know what works and what doesn’t work and we have ideas on what new measures could be taken. It is now for you to decide how to create the political climate that will convince the tax havens that have not implemented these standards to do so and to do so quickly. Your political leadership is called upon to make change happen."

And it is very welcome, too that he noted this:

"It is important to recognize that this is a problem, not just for the rich countries, but also for the poor countries of the world, as can be seen from the fact that cross-border tax evasion will figure very prominently in the debate in Doha in six weeks’ time."