The world is not short of wealth. The size of the global economy has almost quintupled over the past 30 years. In 2017, its value reached nearly $78 trillion.
Yet, the gap between rich and poor gets wider, with a massive increase in wealth at the top, while the total wealth owned by those at the bottom is falling. Since 2015, the richest 1% have more wealth than the rest of the world combined.
Such extreme economic inequality is being fuelled by unfair tax practices that have reached an unprecedented scale. And it’s the world’s poorest people who suffer the most. Governments urgently need to tackle tax dodging to help put an end to global poverty.
The Big Winners in Tax Dodging
The big winners are those at the top, the wealthy individuals and multinational corporations who use their position and influence to capture economic gain for themselves and use economic structures to their benefit.
Those who should be paying the most tax instead maximize their profits in part by paying as little tax as possible. They do this by using tax havens or by making countries compete to provide tax breaks, exemptions, and lower rates.
- 9 out of 10 of the worlds top 200 companies have a presence in tax havens while corporate investment in tax havens quadrupled between 2001 and 2014.
- The 50 biggest US companies slashed $1.6 trillion offshore in 2015, while Europe’s 20 biggest banks are registering over a quarter of their profits in tax havens – an estimated €25 billion in 2015.
- As revealed by the Panama papers, many wealthy individuals from across the globe, including famous celebrities and prominent politicians, are using tax havens to avoid or evade paying taxes on their fortunes.
The Big Losers in Tax Dodging
When rich individuals or multinational corporations stash their wealth in tax havens, they can dodge paying their taxes in the countries where they do business and where they make their money. By doing so they deprive governments of the resources they need to provide vital public services and infrastructures like schools, hospitals and roads, and to tackle poverty and inequality.
Governments either have to cut back on these services, or make up the shortfall by collecting higher taxes from everyone else. Both options see the poorest people lose out and the inequality gap grow. This global system of tax avoidance is sucking the life out of welfare states in the rich world.
But the impact is even more devastating in poorer countries:
- Corporate tax dodging costs poor countries at least $100 billion every year.This is enough money to provide an education for 124 million children and prevent the deaths of almost eight million mothers, babies, and children a year.
- Africa alone loses $14 billion in tax revenues due to the super-rich using tax havens. This is enough money to pay for healthcare to save the lives of 4 million children and to employ enough teachers to get every African child into school.