Thursday, 6 March 2014


It's Friday. The topic is financial. It's FRIDAY FINANCIAL with our resident expert JULIAN SAYER.

Poor people pay taxes and rich people avoid paying tax. How the hell can that be right? Read on . . .


It's killing you!

MILLIONS of people have an uneasy feeling that something is not right in the global economy –

but they struggle to put their finger on what exactly the problem is. Now pay attention and don't fall asleep, when I tell you the very root of the decay is tax, and in particular, the abuse of tax rules and regulations.

As I mentioned in last week's blog, the middle and working classes have endured ten years of a reducing real income, while the super-rich have got richer. The tax burden is forever increasing on the people who can least afford to pay, while the wealthy and multinational corporations are paying less and less. This scenario is widening the income inequality gap, and is the root cause of the social breakdown.

Governments have to raise tax in order to pay for the services a society needs. The more tax they can generate the better the services and pensions they can provide. If tax revenues start to decline, then those services have to be cut. If you really want the breakdown of how much the UK and where it raises these taxes from, you can find it here.

Tax avoidance has become a real issue of late and has to be tackled if you want an equitable society. Corporation tax avoidance is the one that has made the headlines, with companies such as Google, Amazon, Vodafone and Apple making billions in turnover but paying very little in tax.

It is estimated the Inland Revenue is losing £5.5 billion a year through such tax avoiding schemes. The TUC, having done its own analysis, claims that £12bn of tax a year may be being lost from the UK's 700 largest corporations, thanks to planning and avoidance. It looked at the accounts of just the top 50 companies over a seven-year period. This is known as "the tax gap". As the tax gap gets bigger, the Government has to raise its taxes from elsewhere, or cut services. That means higher taxes on middle England, the easy target.

I could talk to you about, income, VAT, inheritance, and corporation tax, but they are all just side issues to the real disease that is causing the world the greatest problems, the issue of tax havens.

Tax havens are nations that offer favourable tax treatment to assets held within their boundaries; often offering zero or near-zero tax rates with very few questions asked. Bermuda, the British Virgin Islands, Dubai and even the tiny UK Channel Island of Jersey are just a few of the places that host corporate entities and trusts created by the world's wealthy and powerful to shield their money from taxes in their home-country.

Tax havens are not exotic, murky sideshows at the fringes of the world economy: they lie at its centre. Half of world trade flows - at least on paper - through tax havens. Every multinational corporation uses them routinely. The biggest users of tax havens by far are not terrorists, spivs, celebrities or Mafiosi – but banks.

Tax havens are the ultimate source of strength for the global powers. In these fortified areas of secret, unaccountable political and economic power, financial and criminal interests have come together to capture local political systems and turn the havens into their own private law-making factories, protected against outside interference by the world’s most powerful countries – most especially the relationship between the UK and its Government. It is estimated that more than $20 trillion acquired by wealthy individuals could lie in offshore accounts. Now, if that was taxed at even the lowest rate, that the rest of us mere mortals have to pay (let's say 20% for ease of maths) that's a staggering $4 trillion that Governments could use to benefit society.

Tax havens aren’t just about tax. They are about escape – escape from criminal laws, escape from creditors, escape from tax, escape from prudent financial regulation – above all, escape from democratic scrutiny and accountability. Tax havens get rich by taking fees for providing these escape routes. This is their core line of business. It is what they do.

Poverty in Africa? Offshore is at the heart of the matter. Industrial-scale corruption and the wholesale subversion of governments by criminalised interests, across the developing world? Offshore is central to the story, every time. The systematic looting of the former Soviet Union and the merging of the nuclear-armed country’s intelligence apparatus with organized crime, is a story that unfolds substantially in London and its offshore satellites. Saddam Hussein used tax havens to buttress his power, as does North Korea’s Kim Jong-Il today.  The Elf Affair, Europe’s biggest ever corruption scandal, had secrecy jurisdictions at its core. Arms smuggling to terrorist organisations? The growth of mafia empires? Offshore. You can only fit about $1 million into a briefcase: without offshore, the illegal drugs trade would be a fraction of its size. Just look at the recent HSBC money laundering scandal of South American drug cartels.

Private equity and hedge funds? Goldman Sachs? Citigroup? These are all creatures of offshore. The scandals of Enron, Parmalat, Long Term Capital Management, Lehman Brothers, AIG — and many more? Tax havens lay behind them all. The rise of multinationals, the explosion of debt in advanced economies since the 1970s is substantially an offshore tale. Complex monopolies, frauds, insider trading rings — these corruptions of free markets always have tax havens at their heart.

Tax havens are defrauding every citizen in every country, even the poorest and most vulnerable are being sucked dry by the leeches of tax evasion.

As a side note I see Forbes announced this year’s rich list this week.

The world’s richest in ascending order from tenth to first place are:

•    Jim Walton     $34.7B     USA
•    Christie Walton $36.7B     USA
•    Sheldon Adelson    $38B     USA
•    David Koch     $40B     USA
•    Charles Koch     $40B     USA
•    Larry Ellison     $48B     USA
•    Warren Buffet     $58.2B     USA
•    Amancio Ortega     $64B     Spain
•    Carlos Slim Helu    $72B     Mexico
•    Bill Gates     $76B     USA

Just a thought? I wonder how many of them actually pay tax? Or if they manage to get around all of that by some wicked web that has been woven. One thing tells me that if they are officially worth that much, then one they might not have that in the bank at their disposal. Secondly, they might well have double that amount. People never declare what they have or own down to the last penny, do they? The 11th person on that rich list is Liliane Bettencourt, heiress of L’Oreal. Back in 2011 she got around paying more than 4% in tax on her wealth. She now has $34.5 billion somewhere (officially), although she has got herself embroiled in a scandal with ex-President Nicolas Sarkozy about illegally financing his election campaign and in return (so the rumour goes) getting out of paying any tax altogether.

I hope the above illustrates how the Government, Big Business and super rich are milking the system for themselves. The rich will get richer, and the big corporations will get bigger. Nothing will change until the tax system changes. The tax system won't change no matter who you vote for.

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1 comment:

  1. Exactly