Monday, August 31, 2009

On poverty, talent beyond belief, and social silence

Christian Aid organised a fascinating panel discussion at the annual Greenbelt festival in Cheltenham this weekend. Panellists included the Financial Times' star financial markets journalist Gillian Tett (author of Fool's Gold); Mike Truman (editor of LexisNexis' Taxation magazine); Christian Aid's economic justice campaign's manager Judith Cavanagh, who jointly leads the Big Tax Return campaign; and, finally, our own director John Christensen. Christian Aid's director Daleep Murkarji chaired the panel.

All the panellists agreed with TJN's central proposition that tax havens undermine economic justice and social stability by providing legalised secrecy services. Secrecy supports tax evasion and other corrupt practices, but it also facilitates tax avoidance strategies, often involving transfer pricing strategies that would be more easily challenged if corporate accounts revealed more information about trades that occur between subsidiaires of multinational companies. Hence Christian Aid's decision to make the campaign for country-by-country report a campaign priority. Mike, a chartered tax adviser, admitted to being unconvinced about whether a new international accounting standard would be successful in tackling this problem, but acknowledged that greater accounting transparency would be helpful.

Gillian Tett noted how phenomena like tax havens, tax avoidance, shadow banks and virtually the entirety of contemporary financial capitalism, has been shrouded in what she calls a "social silence", which has enabled powerful elites to avoid scrutiny of their activities. Social silence has reinforced the myth that those who work in banks and other parts of the financial sector are a social elite, talented beyond belief and worthy of bonuses and tax subsidies because of the unique contribution they make to 'wealth creation.' This sense of detachment was used to justify their aggressive position on tax avoidance (taxes, as we all know, belong to the realm of the "little people") but it also created an environment -- all too recognisable to observers of tax havens -- that has kept bankers and other members of financial capitalism's praetorian elite totally detached from reality: "like the inhabitants of Plato's cave, who could see the shadows of outside reality flickering on the walls, but rarely encountered that reality themselves".

As Tett suggests, financial journalists have played a crucial part in perpetuating the social silence that largely survives intact around the role of tax havens in fomenting inequality, poverty and economic crisis. The operations of banks, law firms and accounting practices located in these places have come under little or no critical scrutiny. On the few occasions in the past when journalists have tried to penetrate the social silence surrounding tax havens, they have generally been bamboozled by arguments about the competitive benefits of working in a "tax efficient" and de-regulated financial environment. Very few have been able to successfully challenge this line by examining how tax competition undermines tax systems, or how by asking searching questions about how loosening controls over capital markets can contribute to market instability and asset price booms.

This being a faith-based event, there was much focus on the culture of the tax avoidance industry. Christensen said that the tax avoidance industry has gone unchallenged for far too long, all too often finding support from a pliant judiciary. By definition, he argued, tax avoidance involves exploiting loopholes that were not intended by governments. This is what differentiates avoidance from tax planning, since the latter involves making use of allowances that have been explicitly granted. The best way of tackling the tax avoidance industry, he argued, was to introduce a General Anti-Avoidance Principle into law, sending a strong signal to the judiciary (and the tax avoidance industry) that avoidance is not to be tolerated.

As recently as three or four years ago the idea of holding a panel discussion on tax avodiance at a public event such as as Greenbelt would have seemed outlandish. Tax was too boring; too technical; too dominated by specialists using an arcane language designed to exclude anyone other than experienced practitioners. No longer. There were some tax practitioners in the audience of around 300 people, but happily the discussion never veered off into techno-speak and the focus remained strongly on development issues. No-one now disputes the idea that tax belongs on the development agenda, and judging from the audience response at Greenbelt, tax is now seen as a crucial part of the process of moving poorer countries in the direction of greater self-reliance.

The idea of economic justice has strong roots in the faith communities. The trade justice movement gained much of its strength from faith-based NGOs. The debt relief campaigns of the 1990s, culminating in the Jubilee Debt Campaign, built its strength on convictions that economic justice is a fundamental social requirement. The tax justice movement has widened the economic justice debate to another dimension. Needless to say, we at the Tax Justice Network are delighted to have such a strong contribution from the faith communities. This is exactly how it should be.


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