JOHANNESBURG – Tax havens are costing the world’s poor trillions of dollars, according to global anti-poverty body, Oxfam, which finds that the richest 1% now have more wealth than the rest of the world combined and frequently engage in the kind of “wealth management” that includes tax avoidance.
In its report An economy for the 1%, released on Monday, the organisation finds that a global network of tax havens enables the world’s über wealthy to “hide” as much as $7.6 trillion.
This industry has been granted legitimacy by the “dominant market fundamentalist world view that low taxes for rich individuals and companies are necessary to spur economic growth and are somehow good news for us all”, Oxfam notes.
“The system is maintained by a highly paid, industrious bevy of professionals in the private banking, legal, accounting and investment industries,” says Oxfam.
Tax havens lead to an outflow of wealth that would otherwise put countries in a position to finance interventions proven to help reduce inequality, according to Oxfam South Africa research and policy lead, Ronald Wasso.
“There are a number of proven interventions that work against inequality, including a national minimum wage and free basic services for the poor,” Wasso told journalists at a briefing in Johannesburg on Monday.
Oxfam, which has recently set up an office in South Africa, will call on global business and government leaders to end tax havens at this week’s World Economic Forum (WEF) in Davos, Switzerland.
The confederation has had a presence in South Africa for more than 57 years through its global footprint and has recently established a local office headed by Sipho Mtati, the former secretary general of HIV/Aids lobby group, the Treatment Action Campaign (TAC).
Oxfam is calling for four interventions in the country, which it believes have proven effective in ending inequality. These include a living minimum wage; a basic income grant; a women-centred land reform programme; and free or heavily subsidised services for the poor.
“Education is a key feature of this. It forms a core pillar of some of the interventions we envisage under ‘highly subsidised services’,” commented Ayabonga Cawe, economic justice project manager.
Profits hived off to tax havens by the private sector could be used to subsidise university fees, added media and communications manager, Simamkele Dlakavu, who said Oxfam South Africa supports the cause of university students in the #feesmustfall movement.
According to the World Bank and International Monetary Fund (IMF), illicit financial flows rob Africa of more than $50 billion annually and are estimated to have cost the continent $1 trillion over the past 50 years – roughly equal to all the official development assistance Africa has received over that time.
While domiciling a company or a bank account in a country with a lot of tax breaks is not illegal, that global tax authorities are tightening up on various forms of tax avoidance and evasion – such as base erosion and profit shifting (BEPS), where multinationals shift company profits to low-tax jurisdictions – suggests that governments and society at large are becoming increasingly uncomfortable with the idea of tax havens.
South Africa still highly unequal
Based on research from the World Bank and Credit Suisse, Oxfam estimates that the richest 10% of South Africans saw their income grow by 64% to $69 billion between 1993 and 2011. Over the same period, the income of the poorest 50% grew by 3% to $11 billion.
These figures are expressed at 2005 levels, when the average rand:dollar exchange rate was R6.36. In other words, the difference between the incomes of the two groups was roughly R438 billion versus R70 billion in 2011.
It is no secret that South Africa is a highly unequal society, which frequently finds itself at the top or near the top of various measures of global inequality.
One of the major contributors to inequality is deliberate policy decisions, argued Cawe. He said that Oxfam would like to see political parties disclose their private funders, in order to identify “corporate capture”, where politicians are perversely incentivised to create policy frameworks that benefit their influential funders, often multinational corporates.
“The fight against poverty will not be won until the inequality crisis is tackled,” Oxfam maintains.
The WEF meeting kicks off on Wednesday under the theme ‘Mastering the Fourth Industrial Revolution’, which examines the transformative impact of technology on industries, economies and societies.