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October 30, 2017

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October 30, 2017

Is it time to get personal on tax dodging?

October 30, 2017
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The people who read this blog tend to be rationalists and progressive, so they won’t need much convincing that 110153scrtax avoidance is a big (and lethal) deal. Oxfam calculates that just a third of the $100bn [approx. £78bn] tax that companies dodge in poor countries annually is enough to cover the bill for essential healthcare (vaccinations, midwives and diarrhoea treatment) that could prevent the needless deaths of eight million mothers, babies and children.

But we’ve been putting out these kinds of ‘killer facts’ for years, and our market research suggests that tax remains an issue that fails to move the public – too geeky; too remote. It shows the limits to the kinds of evidence-based narratives we were discussing in the Netherlands last week. (Ed Cairns will have more on that later this week).

So we decided to try and humanize the issue, asking the Don’t Panic Creative Agency that produced the award-winning Syria video for Save the Children to come up with something that would make tax avoidance an urgent, human issue that ‘cuts through’ to the non-wonk world. Here’s what they came up with: ‘The Heist No One is Talking About’. What do you think?

If you like it, please tweet the link, embed the video or go to the Even It Up campaign website for ideas on how to get involved. FAQs on the film here.

And if you prefer your evidence less personal and upsetting, here you go (from the press release accompanying the film).

‘Oxfam is urging the Chancellor to use next month’s Budget to commit to implementing tougher tax laws for British multinationals, including those that operate in developing countries, by the end of 2019. As movement towards an EU tax transparency deal has stalled, it is calling on him to push ahead and build on the leadership some UK companies have already shown.

More than a year since the Government passed legislation to enable the introduction of comprehensive public country by country reporting for UK-based companies and nearly two years since the last Conservative government agreed the case had been made for the change, it is still no closer to being a reality.

The authors of ‘Advancing social and economic development by investing in women’s and children’s health: a new Global Investment Framework’, which draws on the work of a group coordinated by the WHO and The Partnership for Maternal, Newborn & Child Health, estimate that 147m child deaths, 32m stillbirths and 5m maternal deaths could be avoided if health expenditures increased by US$5 per capita per year between 2013 and 2035. The report examines 74 countries with large numbers of people living in poverty which experience 95 percent of global maternal and child mortality, such as India and Zambia. Oxfam’s figures are annual averages based on the aggregate numbers i.e. a total spend of $678.1bn, or $29.48bn a year over 23 years, to prevent 7.78m child deaths and 217,000 maternal deaths annually.

The UN estimates that corporate tax avoidance costs developing countries at least $100bn a year, i.e. $8.3bn a month and $33.3bn every four months.

The Flint Amendment to the UK’s Finance Bill was accepted on 5 September 2016 and empowered ministers to require large multinationals with a headquarters or substantial presence in the UK to publish headline information about their income, employment and taxes. The UK Government has been waiting for a corresponding EU-wide deal on public country by country reporting to progress – but this has been held up and it’s unclear if EU leaders would approve it.

The IMF says that corporate income tax contributes around 16 percent of government revenue in poor countries compared to around 8 percent in rich countries. While corporate income tax rates have fallen in recent years, developing countries are likely to still depend on it roughly twice as much.

How tax collection affects health spending: Financing universal health coverage – effects of alternative tax structures on public health systems: cross-national modelling in 89 low-income and middle-income countries

In July, RB, the British manufacturer of Dettol and Nurofen, called for tougher tax laws that would protect poor countries following an Oxfam investigation.’

4 comments

  1. OK I will jump in, since this seems to be ‘The Video No One Is Talking About’.

    This is a powerful piece of communication, but it is devoid of specific content about ‘companies not paying their fair share of tax’. An ad agency could have produced the same video and portrayed any group that the client wanted as scary-masked-men; immigrants, the EU, the IMF, ‘White Monopoly Capital’, Obamacare ‘death panels’ take your pick. Perhaps this is the direction that public debate is going in, but its not a good one.

    “Oxfam calculates that just a third of the $100bn tax that companies dodge in poor countries annually is enough to cover the bill for essential healthcare that could prevent the needless deaths of eight million mothers, babies and children” Using maternal and child mortality statistics in this way has a shocking effect. Either you must agree with the policy proposal or you are on the side of the masked-men-who-turn-off-incubators. It blocks off routes to discussion about the nature of the underlying issues, the assumptions used in the estimates or the potential effectiveness of different policy options.

    This is not the first time that a tax campaign has used a similar calculation. Back in 2008 Christian Aid (‘Death and Taxes’) said the annual figure for corporate tax avoidance from developing countries was $160 bn and the number of deaths it might have prevented was 350,000. Nearly ten years (and a significant international policy shift) later Oxfam is using the same argument with a smaller number ($100 billion, from UNCTAD). Only it has raised the stakes on the number of deaths by 22 times to 8 million.

    Would public country by country reporting result in 8 million fewer child deaths annually?

    It seems highly unlikely to me. Firstly because there is the old bait-and-switch going on in the definition of ‘poor countries’. 72% of the WHO estimate of where $5 per person of additional basic healthcare spending would make a difference relates to low and lower middle income countries. Only 15% of the FDI stocks in developing countries (which is the basis of UNCTAD’s estimates) relate to these countries. Secondly only a portion of any additional tax revenue would be spent on healthcare. The Lancet paper that Oxfam references says $1 in every $10 in additional taxes goes to healthcare. By comparing aggregate numbers you can create a big claim, but it depends on assuming that additional taxes collected in China will be spent on healthcare in Cambodia. it doesn’t work that way in practice (which is where this matters) . For example if you run the same calculation with the UNCTAD/Lancet figures looking at a low income country such as Malawi (FDI stock in 2012 $1.2 bn) it comes out with an estimate of $21million of tax – suggesting 13c of additional healthcare spending per person. In a middle income country like India the estimate comes out at 30c of additional healthcare spending per person.

    Thirdly, and almost forgotten, is the actual question of whether public country-by-country reporting would be an effective policy addressing developing country tax priorities.

    Maternal and infant mortality is really serious. Tax policy also matters. I do think it is time to humanise the issue, by bringing real humans into the room together, not by making shock- videos. There are already examples of public country-by-country reports from the banking and extractives sectors, and revenue authorities in China, Brazil, Malaysia, Mexico, South Africa will be amongst the first to receive country-by-country reports. Now seems like to the time for double-down on learning how to best use this information, rather than on making big claims based on misleading calculations or polarising videos portraying companies that invest in developing countries as masked villains.

  2. Good write-up. I was shocked not so much by the made-up numbers but by Oxfam’s fabrication of incubators being stolen, given there was a tale about incubators being stolen that was instrumental in the lead up to the First Gulf War. This being the lies told by Nayirah and her coaches in 1990, and possibly led to Kuwait being freed by mainly US forces rather than Arabic forces. We will never know for sure, but the whole recent history of that region may have turned out differently if the fabrication had been called out at the time.

  3. Hi Maya, Oliver from Oxfam here, thanks for this.

    We made this film to bring to life the very real human cost of tax dodging, which often gets divorced from technical discussions about fiscal policy, and to build public support for change. Of course, it isn’t just about companies minimising their tax liabilities – but also how governments choose to spend their revenue. Oxfam and our partners campaign in countries around the world, such as Kenya and Vietnam, for increased investment in healthcare and greater accountability about public spending. We’re clear that public country by country reporting is just one tool needed to help tackle corporate tax avoidance. But we also believe that the greater transparency this would provide is crucial if citizens are to be able to properly hold governments to account, and for governments to be able to claim fair tax payments from companies. It would also be an increased deterrent to companies to dodge tax, and enable greater understanding of how and where taxes may be avoided.

    We highlight the fact that the tax dodged in poor countries is three times the cost of medical interventions needed to prevent eight million deaths a year, but we do not assume or state that tackling tax dodging would see this healthcare funded or these deaths prevented. Our calculations are based on an additional $5 per person per year set out in the Lancet’s Global Investment Framework for Women and Children’s Health; we do not apply the ratio in the Financing UHC paper.

    The IMF calculates that developing countries – specifically low income and low-middle income – rely on corporate tax for around twice as much of their governments’ revenue as do high income countries (16 percent versus 8 percent). And while low income countries lose smaller absolute amounts to corporate tax dodging, as a proportion of GDP, the relative impact tends to be much higher than for high income countries. There is also evidence to show that when developing country governments increase their tax revenue – in particular from corporate and income tax – they spend more on healthcare. In poor countries with very low per capita health spending, every little really does help.

    We recognise that the tax system has many systemic problems beyond transparency and a new round of international reforms is needed, to help raise much-needed funds to overcome poverty. Oxfam works with governments and companies to push for these systemic changes.

  4. From Iain Campbell:
    To follow up on Maya’s comments and Oliver’s response. And apologies for a running on a bit but these are important issues.
    I think it is a little telling that Oliver did not really address Maya’s concerns at the portrayal and the impact on any public understanding. Duncan argued that “But we’ve been putting out these kinds of ‘killer facts’ for years, and our market research suggests that tax remains an issue that fails to move the public – too geeky; too remote. It shows the limits to the kinds of evidence-based narratives we were discussing in the Netherlands last week. (Ed Cairns will have more on that later this week).
    So we decided to try and humanize the issue asking the Don’t Panic Creative Agency that produced the award-winning Syria video for Save the Children to come up with something that would make tax avoidance an urgent, human issue that ‘cuts through’ to the non-wonk world.”
    To me, the immediate problem is that only a few years ago Oxfam said the opposite. The CEO said “We need to shrug off the old stereotypes and celebrate the continent’s diversity and complexity, which is what we are attempting with this campaign. The relentless focus on ongoing problems at the expense of a more nuanced portrait of the continent, is obscuring the progress that is being made towards a more secure and prosperous future.”
    http://www.dailymail.co.uk/news/article-2253655/Band-Aid-image-starving-children-Africa-warns-Oxfam-charity-says-people-longer-moved-continents-problems.html
    I found the video very reminiscent of the adverts years ago with photos of starving babies. Powerful but also making an unintended point that people in poor countries were victims, requiring international NGOs to intervene to rescue them from poverty. It removed all agency and capacities of their own, and can even be counter-productive. Blame is placed with big MNCs and I could not see any caveats to that message.
    https://www.theguardian.com/voluntary-sector-network/2014/sep/29/poverty-porn-charity-adverts-emotional-fundraising
    Oliver says, correctly, it isn’t just about companies minimising their tax liabilities – but also how governments choose to spend their revenue. But that is not a message that comes through in the video. And by quoting aggregate figures it is effectively tarring every company operating in these countries with collusion in killing sick people. That surely is as helpful as saying everyone who buys an IPhone or MacBook (and I see lots at development conferences) is actively colluding with tax avoidance. It also lets Government off the hook for any domestic responsibility.
    I think the picture is even more mixed when you look at the data. Oxfam draws heavily on the two pieces of work tax collection affects health spending and Advancing social and economic development by investing in women’s and children’s health: a new Global Investment Framework’.
    What it does not seem to have adopted as a campaigning theme is the fuller conclusion drawn in The Lancet’s paper. That summary does not mention MNCs “tax dodging”. Instead it states:
    “Increasing domestic tax revenues is integral to achieving universal health coverage, particularly in countries with low tax bases. Pro-poor taxes on profits and capital gains seem to support expanding health coverage without the adverse associations with health outcomes observed for higher consumption taxes. Progressive tax policies within a pro-poor framework might accelerate progress toward achieving major international health goals”.
    So I think there is a clear steer to wider domestic action, not just international. As Oliver says, the tax system has problems beyond transparency and a new round of international reforms is needed. But domestic action is also needed. It cannot be in the long term interests of poor countries to be so heavily and probably over dependent on tax revenues from large companies. (In fact, that imbalance would worsen if the Heist succeeded in its aims.) To alter that balance to extend domestic tax bases may need possibly difficult decisions on policies, such as creating the infrastructure needed, like registers of property. I’m not sure why this area seems ignored in favour of country by country reporting (which, as far as I know, is not a key demand by the governments of poorer countries) and no attempt made to highlight any (Oxfam supported) local initiatives.
    The Lancet also reviews the history of health spending and comes to the finding which Maya noted, “Each US$100 per capita per year of additional tax revenues corresponded to a yearly increase in government health spending of $9.86.” So, on that basis, to get the $30bn additional spending on health care would require missing revenues of ten times that amount. Oliver tells us that Oxfam “do not apply the ratio in the Financing UHC paper”. He doesn’t go on to say why they accept other parts of the paper but not that part. Was there an (implicit) assumption that they would ignore domestic politics and the fact Governments cannot focus on just one issue?
    Turning to the second paper, which says that investment needs differ across the 74 countries. Low-income countries would require more per capita because health systems need more strengthening. The total necessary increase for health spending among low-income countries in the high scenario would be about 6%, compared to an average of 2% for all countries in the analysis (relative to present-day health expenditure per capita).
    But if we look at the data on tax losses for low income countries it supports Maya’s view that the tax lost to tax dodging is not evenly distributed on a per capita basis across poorer countries. The UNCTAD data is a global perspective, on a top down basis, not country by country. Recent work tries to quantify the cost of tax dodging across the world (https://www.wider.unu.edu/publication/global-distribution-revenue-loss-tax-avoidance)
    Of the nearly $500bn identified 40% accrues to the USA, 90% to 20 richer countries (and China), and very little to low income. A rough calculation of the low income countries in Africa covered in the UNU study show a tax loss of just under $3bn to cover c430mn people. On the Oxfam model this uses up 70% of that money, with 30% to cover social welfare, housing, education, infrastructure, etc that actually make up the vast majority of Government expenditure. If we take the Lancet 1:10 ratio then that $3bn translates into $300mn. It’s a far more modest sum, yet it may be significant for health outcomes. So I think the video has good intentions but is raising false hopes that there are easy sources of sufficient money to bring about a quantum shift.

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