Hot! A different sort of tax revolt

TheStar.com – opinion/editorialopinion
Published On Wed Mar 09 2011.    Peter Gillespie

In late February, dozens of bank branches in the United Kingdom were taken over by groups of citizens angry about the government’s austerity measures.

In response to cutbacks to daycares and libraries, several banks were transformed into crèches as parents sat on the floor and read to their children. A laundry was set up in a branch of the Royal Bank of Scotland in protest of cuts to laundry services for the elderly. Thirty-five Barclays Bank branches were occupied after it was revealed that the bank had paid only £113 million ($177 million Canadian) in taxes against a 2009 profit of £11.6 billion ($18.2 billion). Public anger grew as bank executives began awarding themselves millions in bonuses.

The protesters are part of a loosely coordinated group called UK Uncut that began last October. The organizers tapped stirring public into anger that the U.K. government’s £850 billion ($1.3 trillion) bank bailout is resulting in cutbacks to essential services and that the most affected are the unemployed, pensioners, single parents, students and the elderly. There is also growing public recognition that many corporations, banks and the wealthy have found ways to avoid paying taxes altogether.

The first target of the protest movement was the giant mobile phone company, Vodafone, which had reduced its tax bill by at least £1 billion through a dodgy but technically legal tax manoeuvre. Demonstrators then closed an upscale Topshop store in London where two enterprising protesters managed to superglue themselves to the store’s display window. Topshop is part of the Arcadia fashion empire owned by Sir Philip Green, the nineth richest man in the United Kingdom. Despite operating more than 2,000 stores throughout the U.K., the company pays no corporation tax since it is technically owned by Sir Philip’s wife, who resides in the tax haven of Monaco.

These protesters are not anti-tax. Rather, they are insisting that everyone, including rich individuals and corporations, pay their fair share of taxes. Their imaginative protests have captured widespread attention and almost 20,000 people in the U.K. are following the movement on Facebook. The movement has also inspired the creation of similar groups in the U.S., Canada, Ireland and Australia.

There has been considerable research over the past few years on the extent of tax evasion and the mechanisms used by wealthy individuals and corporations to reduce or eliminate their tax obligations. The London-based Tax Justice Network calculates that $11.5 trillion of the wealth of the world’s richest people is hidden in tax havens, resulting in global tax losses of $250 billion every year.

Half of all international bank lending and at least one-third of foreign direct investments are routed through tax havens. More than half of all global trade is conducted through tax havens, enabling corporations to allocate profits in low-tax offshore jurisdictions. The main service provided by tax havens, of course, is secrecy so that their corporate clients can avoid the scrutiny of regulators and tax authorities in their own countries.

Tax expert Richard Murphy calculates that the annual loss to the U.K treasury is at least £25 billion ($39 billion) due to tax evasion by corporations and the wealthy. A U.S Senate investigation estimated the cost of tax evasion at $100 billion annually. While no independent data exist for Canada, the auditor general warned in 2002 that corporate “tax arrangements with foreign affiliates have eroded Canadian tax revenues of hundreds of millions of dollars over the past 10 years.”

A 2008 study conducted by the University of Quebec at Montreal estimated that the five large Canadian banks avoided $16 billion in provincial and federal taxes through offshore subsidiaries between 1991 and 2003. In 2009, Statistics Canada reported that $78.4 billion of Canadian assets were invested in the tax havens of Barbados, Bermuda and the Cayman Islands, exceeding the GDP of these tiny jurisdictions many times over.

Simple arithmetic shows us that as large numbers of economic actors are exempted from taxation, government revenues fall and program spending must be cut. The notion that reduced taxes will increase tax revenues is nonsense. Thus, what is at stake is the incremental dismantling of health and social programs that citizens fought to achieve over many years. We are already witnessing this in places like the U.K., Ireland, Greece, California and Wisconsin.

Whether these concerns will play out in an upcoming federal election remains to be seen. According to the Parliamentary Budget Officer, the Harper government’s reduction of corporate taxes will diminish federal revenues by $11.5 billion over the next two years. This is effectively an $11.5 billion public subsidy to corporations on top of the subsidies they already receive. As the Fraser Institute has pointed out, Canadian businesses received a staggering $182.4 billion in taxpayer subsidies between 1994 and 2006. In 2006, the last year for which information is available, each Canadian taxpayer paid $1,291 toward these subsidies.

A public debate about taxes is urgently needed because it is fundamentally a discussion about the kind of society we want to live in. Tax policy no longer plays a role in redistributing income and wealth, and economic inequality in Canada has reached levels previously seen only in 1929. The Uncut movement appears to be the beginning of a public discussion, one which is long overdue.

Peter Gillespie is an independent social justice activist who in Ottawa. He has written widely about the impact of corporate tax evasion on the economies of developing countries.

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2 Comments

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