Towards a fair and efficient tax regime

Successive EU treaties on the one hand, and the ability of the ECB to pull the rug from under naughty nations on the other, implies that the level of fiscal discipline Eurozone states in particular are subject to has become historically unprecedented. At the same time, growing burdens placed on states due to rising environmental, social, distributional, and demographic pressures implies an ever-greater demand for public spending. With middle income and working class voters turning rightward and seemingly less willing than ever to pay more in taxes, something has got to give. And well it might.

Last week the European Foundation for Progressive Studies (FEPS), a Brussels-based think tank aligned with progressive movements in Europe, the European Trade Union Institute, TASC, and other organisations held a conference on the issue of corporation tax. The conference was well-attended and discussed a number of issues including the general role of tax havens, the effects of tax competition on developing countries, transparency and reporting issues, and the effectiveness of recent moves to curtail or moderate multinational tax avoidance.

All such matters are relevant to Ireland. On the issue of Ireland’s role in multinational tax avoidance, what was striking was how little disagreement there was that Ireland is a major tax haven. At the same time various designations of what countries are and are not a tax haven based on official international organisations were largely dismissed as highly politicised; EU countries do not to feature on EU blacklists, for instance. High ranking officials either did not challenge this view, or openly agreed that such lists are flawed. One presentation based on a recent Oxfam report listed Ireland as the fourth most important tax haven in the world for European banks. Of the other issues covered, it was noted that the practices of Ireland and other tax havens such as the Netherlands and Luxembourg do significant damage to developing countries through lost revenue.

In terms of existing work and Ireland, the characterisation of Ireland as a major tax haven for the banking sector reinforces an earlier finding which placed Ireland as the world’s sixth worst tax haven overall. As for the impact on developing countries, Christian Aid has perhaps been the leading voice in dismantling the government’s claims that Ireland’s tax regime does little damage to poorer nations. Though Ireland has gingerly signed up to some actions to address tax avoidance such as country-by-country reporting, it has been opposing the more substantive measures such as a digital tax.

There is, of course, a rationale to Ireland’s opposition to greater harmonisation of corporate tax codes. For one, tax receipts from corporate profits are at an all-time high. Importantly, complaints from France, Germany, and other leading powers that Ireland and co.’s tax regimes constitute unfair advantage are mostly a joke. As a rule, rich countries became rich in no small part by protecting their own industry (Ireland is one of the few wealthy countries that are exceptions to this rule). The virtues of free markets and free trade were then preached by the rich and rich countries, and duly repeated by economics curricula around the world. To this day reality, of course, begs to differ. To take but one example among many, for 13 years the EU has been arguing with the US in the WTO about who throws more money in subsidies at the at their respective airline companies, Airbus and Boeing. Moreover, support and development by the US state was central to the creation of modern aviation, without which Boeing’s commercial planes would likely have been commercially unviable. Closer to home, one of the largest single transfers of wealth in global economic history to a sector (relative to an economy’s size) was the Irish bank bailout, which the EU was not too fussed about.

Thus, the conference did not address, or attempt to address, the reality that state support and unfair advantage is the rule not the exception in state corporate capitalism. A country such as the Netherlands has long been a technologically sophisticated country so that a transition away from tax haven-based activities would presumably be quite manageable. A country such as Ireland (or Malta, Cyprus, etc.) has, in contrast, significantly lower living standards. Ireland has, moreover, for historical reasons long-struggled to generate value-added and sophisticated exports from its indigenous sector. Ireland is, of course, drowning in riches compared to the developing countries which suffer from lost revenues due to multinational avoidance. Nevertheless, moves towards tax harmonisation need to be complemented with serious attempts at industrial upgrading. But that's another day’s work.  

Posted in: Taxation

Tagged with: corporationtax • industrialpolicy • tax-haven

Robert Sweeney     @sweeneyr82

Robert Sweeney is a policy analyst at TASC and focuses on issues surrounding Irish political economy and distribution. He has a PhD in economics from University of Leeds, which concentrated on financial markets and investors, banking, international macroeconomics, and housing. He is also interested in debates on alternative schools and methodology in economics, and ownership.