The European Union is clamping down on tax fraud; evasion, havens, “aggressive tax planning” and the like. It is all dependent, of course; dependent on finalising an agreement with Switzerland and others outside the EU, dependent on Luxembourg opening up its secretive banking system, and dependent on the G8 and G20, without them they can be no global standard, a prized goal of European Commission president, Jose Manuel Barroso.
It makes sense for the EU to go after tax evaders; corporate cheats are perhaps the only class of people deemed lower than European politicians right now. However, despite optimism and stated determination to clamp down on tax fraud, when leaders met in Brussels on 22 May, somewhat unsurprisingly nothing concrete was decided, just a vague promise to have it all worked out by the end of the year.
It is estimated that around €1 trillion of public money is lost to Europe each year. According to a newly published report by development NGO Oxfam there currently exists about €14 trillion stashed in tax havens worldwide, enough for twice the required money needed to lift every person above the level of “extreme poverty,” those living on less than $1.25 a day.
About two-thirds of this offshore wealth (€9.5 trillion) is hidden in EU-related tax havens, such as Luxembourg (already, like Cyprus, under the watchful eye of the US) and Malta. The UK, with tax havens in the Channel Islands, the Isle of Man and elsewhere, accounts for half the European share. Countries like Andorra, Lichtenstein and Switzerland continue to facilitate tax evasion (although they are moving to eradicate this through a new deal with the EU). Ireland has been identified by the US Congress as a country that aids corporate tax fraud. The Netherlands is also under suspicion.
The financial crisis has not shown-up the best qualities of European leaders. For too long there has been the mantra that public spending cuts are the only thing that will get Europe out of recession. Now, as the crisis drags on, and with European Parliament elections a year away, the argument has shifted towards growth policies. Even long-term commission holdouts have softened their position on austerity. EU Budget Commissioner, Janusz Lewandowski has also weighed-in on the debate. Tax fraud, though, had always been off the table, but recent high-profile cases, such as those involving Apple and Starbucks, have forced the issue somewhat. There is momentum; both in Europe and the US, and that momentum should not be lost.
The slow response to the issue of tax fraud has proved to be a failure of policy and a moral scandal. Speaking at the European Parliament on 21 May, Barroso was adamant that a deal could be reached, at least on information exchange. But more is needed; a common definition of tax havens, a blacklist, a re-write of existing transnational banking agreements that facilitate evasion, more stringent transparency rules for corporate accounting.
So far, the will has been weak. But with the poor and hungry getting restless, all the while wondering what to do with their anger, and with a political class under pressure (fearing the polls, the voter response), something good may just come about, however belatedly. There is no time to stall further.