Global tax evasion, inequality and quantitative easing…

The Group of twenty (G20) committed to finding a global solution for tax evasion after the financial crisis, and in 2009 it agreed to make arrangements for the exchanging of tax information between tax administrations around the world. In October this year the Organisation for Economic Co-operation and Development (OECD) and the G20 officially endorsed the automatic exchange of tax information between all OECD and G20 countries as well as major financial centres that participate in the annual meeting of the Global Forum on Transparency and Exchange of Information for Tax Purposes in Berlin. A status report on committed and not committed countries or jurisdictions and whether they will start reporting information in 2017 or 2018, is to be presented to G20 leaders during the annual summit held in Brisbane in less than two weeks. Australia along with thirty-eight other countries that include China, Saudi Arabia and Hong Kong have chosen to start the reporting of information in 2018. There has been much conjecture in the media and amongst politicians in the Australian Labor Party (ALP) as to why the G20 host country isn’t setting a good example by being one of the first to report in time for the G20 in 2017. Global tax avoidance has been a big priority for Prime Minister Tony Abbott’s government, and it dragging it’s heels for reporting tax evasion has been viewed as at odds with it’s agenda. It’s also to be noted that in mid-October this year The European Union (EU) finance ministers also agreed to a far-reaching crackdown on tax evasion and to make sure that their standards were on par with the global rules by 2017.

As I briefly wrote in my last article multinational corporation owner Rupert Murdoch, was invited last month by Treasurer Joe Hockey to address the G20 in Washington, for the International Money Fund’s (IMF) annual meeting. It was the first time that a non-political leader had addressed the group of world leaders. Mr Murdoch surprised many in his nine page speech, by addressing the problem of global inequality. He used percentages of the tax paid by the richest 1% of nations to highlight this but a better analogy is that eighty-five people in the world equal the wealth of 3.5bn people worldwide. He also referenced his Brisbane 20 (B20) speech, reiterating his belief that governments should “stay out of the way”, and let businessmen run things. Mr Murdoch concedes that the verdict is still out on the money experiment of quantitative easing (QE), “but that we already know that one result has been greater inequality”. He also said: “Quantitative Easing has increased the price of assets, such as stocks and real estate and that has helped first and foremost those who already have assets.” 

To provide a brief overview of QE, (please refer to the featured image at the top of the page), it’s basically a monetary policy for stimulating the economy that was adopted by the US, Japan, the UK and Europe after the financial crisis of 2008. Using the US Federal Reserve bank (Fed) as an example, it buys “assets” from commercial banks and other private financial institutions or rather various forms of “debt”. The main forms of debt purchased are treasury bills, notes, bonds and mortgage backed security papers, which appear as “assets” on the governments balance sheets once purchased. QE differs from normal monetary policy, in that when the Fed normally purchases various bonds it usually lowers interest rates while also increasing the amount of money in the system. QE can’t lower interbank interest rates because they’re already at 0%, only the quantity of money is controlled because the price can’t be. As Mr Murdoch has said the verdict is out as to the success of the QE monetary policy, but let’s think of it this way; it was originally billed as a $600bn exercise but ended up being $3,700bn and the Fed’s balance sheet has also grown more than three-times in just over five years and is an unprecedented monetary expansion. Some of QE’s unintended consequences are reported to include, money sitting on balance sheets of busted banks pretending to be solvent, and money finding its way into asset markets and tangible “assets” as Mr Murdoch referenced in his speech. Tax evasion and the residual effects on the countries it does it’s business in while effectively paying nothing, coupled with countries such as Ireland, offering extremely low corporate tax rates is more than likely a larger part of the explanation than dubious monetary policy. QE finished in the US last month, time will tell how it went.

The “double Irish” is a well known tax loophole that allows corporations to register in Ireland and to also be a tax resident in another country, usually ones that don’t even have corporate income taxes, such as Bermuda. US corporations for example, are making huge profits in other tax havens such as the Cayman Islands and the British Virgin Islands. Some of the profits exceed the gross domestic product or the GDP of the host country, with Bermuda’s offshore profits being an incredible 1643% of their total economic output. Put simply, US companies reported $94bn in profit while the Bermuda’s GDP was just $6 billion, according to data collected and a report by the US International Revenue Service and from subsidiaries reporting profits outside of the US in 2010.

During the Irish Budget 2015 announcements, the Minister for Finance Michael Noonan confirmed that the “double Irish” tax deal would finish as of January 2015 after pressure from the EU. However all companies currently operating within the tax deal have until December 31, 2020 to adjust their financial practices accordingly. While this a step in the right direction, is this not also tempting corporations to find further loopholes within that time frame? Mr Noonan said further: “Aggressive tax planning by the multinational companies has been criticized by governments across the globe and has damaged the reputation of many countries.” Following the announcement, some companies registered in Ireland pledged to work within the new regulations. And Google said: “As we’ve always said, it’s for governments to decide the law and for companies to comply with it . . . We’re deeply committed to Ireland and will work to implement these changes as they become law.”

Having cracked down on the “double Irish”, Mr Noonan also strongly said that Ireland wouldn’t be changing its corporate tax rate, which is 12.5% and is the eighth lowest in the EU with the US being 35%. “The 12.5% tax rate remains at the heart of this,” Mr Noonan also said: “The government has successfully protected the 12.5% tax rate in recent years. The 12.5% tax rate never has been and never will be up for discussion. [It is] settled policy. It will not change.”

Australia’s top companies have been nonplussed according to local media, despite the global crackdown on corporate tax avoidance with almost 60% of our top 200 listed companies still holding subsidiaries in tax havens or low-tax jurisdictions. Data has also shown that some companies that promised to get out of tax havens have actually added to their offshore subsidiaries. And companies such as 21st Century Fox, Westfield, Toll Holdings and Telstra, have more than 40 entities in these well-known tax havens. Fourteen of the 20 top companies, including two of Australian’s biggest banks, also hold entities in these locations. The report also reveals nearly a third of the previously mentioned 200 companies are now paying less than 10% tax on profit compared to the statutory corporate tax rate of 30 per cent in Australia, (to be adjusted to 28.5% in 2015). “Secrecy jurisdictions play a key role in multinational tax dodging and undermine the ability of democratically elected governments to levy taxes in a just and fair way,” the report also says that: “Corporate tax avoidance must be addressed.”

Mr Murdoch also spoke of wanting less bank regulation and that his policy priorities are education, immigration reform, infrastructure investment, and cheap energy. The cheap energy is a reference to American natural gas not cheap Australian energy. He also thinks that the EU overly regulates and doesn’t like the EU because of their anti-competition laws, regarding his UK media ownership strangle hold and because he would like to have a crack at the European market. The UK has recently being making noise to leave the EU with UK Prime Minister David Cameron, recently failing to get an EU membership referendum through, he isn’t giving up though. Mr Cameron has a fight on his hands with the United Kingdom Independent Party (UKIP) which was once a fringe anti-EU group that has grown considerably and the leader Nigel Farage having Mr Murdoch’s seal of approval.

Mr Murdoch clearly has our government’s ear in particular Mr Hockey’s, as he espouses everything that I have mentioned from his speech including his favoured policies, but the difference is he sells it as the Abbott government’s policies. This isn’t democracy and obviously Australian’s did not vote for him and most probably don’t even know who he is. How much longer will our politicians pander to a man that renounced his own Australian citizenship to become a naturalised American to buy more TV licences in America? A man that controls most of the UK, American and Australian media, because Mr Murdoch is definitely not ‘Team Australia’, only when and if it suits his bank balance.

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6 comments

  1. I would disagree with comment that UKIP has grown considerably. The media and especially the BBC, have given Farage and UKIP, disproportionately more publicity than they deserve. Whilst the Green Party, with an MP since 2010, a number of MEPs, control of Brighton and considerable influence in some other councils. Does not get the media response it deserves, even being denied again, a place at a leaders debate on BBC TV. It is not just Murdoch’s media empire that is an obstacle to true democracy.

    Like

  2. Reblogged this on patricktsudlow and commented:
    I would disagree with comment that UKIP has grown considerably. The media and especially the BBC, have given Farage and UKIP, disproportionately more publicity than they deserve. Whilst the Green Party, with an MP since 2010, a number of MEPs, control of Brighton and considerable influence in some other councils. Does not get the media response it deserves, even being denied again, a place at a leaders debate on BBC TV. It is not just Murdoch’s media empire that is an obstacle to true democracy.

    Like

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