Tax Pirates of the Caribbean - SMH Online Opinion Editorial

Tax Pirates of the Caribbean

A few years ago, a team of American journalists decided to set up a company in a tax haven. After a quick internet search, they paid US$900 to set up a shell company in Belize (they called it ‘Unbeliezable’). Employees of the organisation who set it up agreed to represent the journalists as the company’s directors and shareholders. That meant no-one could find the true owners’ names through a search of the company register. The journalists then set up a bank account in Singapore to collect the money produced by the company.

The whole process took only days. 

But at every step, their Belize advisers assured them how secret their details were. Tax haven jurisdictions don’t voluntarily share information with other nations, and have zero tax rates on corporate and individual income. That makes them the perfect place to hide assets.

While leaders like President Obama have decried tax havens, the Australian government has been slow to act. The glossy documents that accompanied the Turnbull Government’s budget contained cartoon images implying that the government was getting tough on tax havens. But in reality, the Coalition remains unwilling to close the debt deduction loopholes that let billions of dollars escape the Australian tax net.

It’s hard to think of many reasons why decent people would park money in a tax haven. Sure, if you live in a lawless nation and want to avoid extortionists, you might be acting reasonably. But that’s not the majority of account holders in tax havens. Tax expert Gabriel Zucman estimates that around four-fifths of money in offshore bank accounts is there in breach of other countries’ tax laws. He puts the total amount of dodgy cash in tax havens at $6 trillion – about what the Australian economy turns over every four years.

Some hints about who uses tax havens and why has come via the ‘Panama Papers’: the leak of over 11 million files from one of the world’s biggest offshore law firms, Mossack Fonseca. It suggests that money in tax havens has been earned from government corruption, money laundering, drug-running, fraud, criminal tax evasion and keeping money from ex-wives after a messy divorce. The Panama Papers named organised crime bosses, sports stars, business identities and twelve heads of state. One leader, Iceland’s prime minister, has resigned.

Remember, this is just one leak, from one law firm, in one tax haven. Who knows what the ‘Belize Papers’, the ‘British Virgin Islands Papers’ or the ‘Jersey Papers’ might contain? In the 2012 US Presidential election, there was widespread outrage at the news that Mitt Romney had been keeping a significant share of his wealth in the Cayman Islands.

Paying tax is a fact of life for most of us. It’s how we afford new roads, better schools, and good health care. But the existence of tax havens undermines that social compact in two ways. 

First, tax havens bleed our tax revenue. Nearly one-tenth of the world’s financial wealth is squirrelled away in tax havens, with most of it hidden from the tax authorities. The Panama leak has led the Australian Tax Office to investigate around 800 wealthy people. Imagine how many others remain undetected?

The second harm that tax havens do is to give many people a sense that the system is rigged against the little guy. Over the past generation, earnings have risen three times as fast at the top as at the bottom. Inequality becomes turbocharged by the use of tax havens. For the teacher, the tradie or the taxi driver, tax havens lead them to ask ‘if the big guys aren’t paying their fair share, why should I?’

While the super-rich will always come up with excuses for using tax havens, the simple fact is that they undermine tax justice. Countries like Panama, Bermuda and the Cayman Islands are not havens for shelter, but holes for hiding. The more light shone upon the buried treasure below, the better.

This opinion-editorial was published online in the Sydney Morning Herald on Saturday, 18 June 2016.

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Cnr Gungahlin Pl and Efkarpidis Street, Gungahlin ACT 2912 | 02 6247 4396 | [email protected] | Authorised by A. Leigh MP, Australian Labor Party (ACT Branch), Canberra.