Tax justice and the common good
By Charles B. Chilufya SJ
It is often reported that globally there is notable progress in human development, especially when considering the changes in China and other countries. Yet incomes among the poorest people in the world remain low, ranging from US$1 to $2 per day, and the outlook is extremely bleak.
The world’s population today is estimated at 7.6 billion human beings. Out of these, hundreds of millions lack basic nutrition, safe drinking water, essential medicines, education, adequate shelter and sanitation. World poverty is so serious that that one third of all deaths every year—or 50,000 daily—are due to poverty-related causes: diarrhea, malnutrition, perinatal and maternal conditions, measles, tuberculosis, respiratory infections, AIDS, malaria and other tropical diseases.
The deprivations suffered by so many people in the world are a massive violation of people’s basic social and economic human rights. But this is not how governments and leaders of the economic and financial world choose to describe it. Instead they point to gross domestic product (GDP) and measure progress against Millennium or Sustainable Development Goals (MDGs/SDGs) to argue that the situation of the world’s poor is steadily getting better and better. They replace the language of human rights or of the common good with that of development goals; as long as there is progress, all is well. But clearly all is not well.
Several theories have been advanced to explain the condition of underdeveloped countries, but these often overlook the strong forces that favour the most affluent people and disfavour the poor. I am referring to structural features of the current global economic and financial order fashioned and influenced by large corporations, banks, industry associations and billionaires that serve their own interests. These encourage illicit financial flows, which drain resources needed for financing basic social services.
Most developing countries have limited taxation capacity and systems for financing the provision of social services. Yet the sectors that could make the most significant tax contribution—wealthy individuals and multinational corporations—find ways to avoid it. Wealthy individuals often externalize their wealth in tax havens and secret bank accounts. Multinational corporations also reduce their tax obligations through mechanisms like transfer pricing or shifting profits into low-tax and no-tax jurisdictions. In 2016, for example, US multinationals booked more profits in Ireland ($76.5 billion) than they booked in China, Japan, Germany, France and Mexico combined ($76.4 billion).
Canada has also seen its losses. Corporations continue to shelter billions of dollars offshore in the Netherlands, Switzerland, Singapore, Bermuda and the Caribbean while the Canadian government does little to curb the practice.
While such losses and revenue leaks occur almost everywhere, they have a much greater impact in developing countries because a dollar lost by a poor country leaves a greater hole than it does in a wealthier country. Even though African countries receive large inflows from the North through aid and foreign direct investment, they are in fact net creditors due to tax evasion, climate change mitigation and the flight of profits earned by foreign multinational companies. Sub-Saharan Africa currently receives around US$134 billion annually in loans, foreign investment and development aid, but $192 billion leaves the region—a $58 billion shortfall. Wealthy countries celebrate their generosity while simultaneously assisting their companies to drain Africa’s resources by allowing unjust financial and economic systems.
Tax evasion and illicit financial flows are hugely important, but we must also look at how rich corporations and individuals participate in formulating and influencing tax rules, often using legal mechanisms. In large measure, they do this by devoting a lot of money and energy to lobbying for international tax rules and an international division of the tax base to favour their own interests. This then begs the question of tax justice at both national and international levels: What does a just system of taxation look like?
Current national and international institutional arrangements are grossly unequal. Wealthy and politically dominant elites value additional dollars going to the rich rather than to the rest of the population. For their part, economists, focusing on GDP, value all additional dollars equally, regardless of where they go. In contrast to these two positions, I would argue that additional dollars going to the poor is vastly more valuable, for it not only has broad benefits for the economy and human development, but also respects basic human rights and the common good.
National and international tax rules should aim at a more equal distribution of wealth, even at the expense of a smaller total, since this also addresses environmental concerns. One way forward in the effort to reform the international financial and economic system, especially with regard to tax justice, is to support the creation of an International Convention on Financial Transparency and a World Tax Authority under UN auspices. In terms of the most recent Jesuit General Congregation, this could be seen as a direct advancement of the mission to reconcile with God, one another and creation.
This article first appeared in the Spring & Summer 2019 issue of CJI’s Mission News. Fr Chilufya is Director of the Justice and Ecology Network (JENA) for the Jesuit Conference of Africa and Madagascar.