As the coronavirus pandemic worsens, governments worldwide are scrambling to keep their economies afloat. Doing so will cost money — and lots of it.
In the UK we’ve witnessed Chancellor Rishi Sunak deliver a series of emergency packages. This began with £12bn to mitigate the immediate economic effects of the outbreak, followed by a huge £350bn stimulus package, £7bn of extra welfare spending, and multi-billion pound packages to support salaried and self-employed workers.
Around the world other countries are announcing similarly impressive and expensive interventions, such as the US’s $2tn stimulus package, Germany’s €600bn of “virus-aid” and €45bn released in France.
For governments, then, every scrap of revenue is critical, which makes the fact that they lose between $500bn and $600bn a year to corporate tax dodging — and $7trn of private wealth that is hidden offshore — harder to stomach than ever. In the UK, the most recent HMRC figures reveal that the nation lost £35bn in uncollected tax, including £5.2bn of corporation tax.
However, the price of our collective failure to tackle tax evasion and avoidance is not now limited to warding off an economic collapse. As health systems around the world strain under the pressure of Covid-19, it’s clear just how much we depend on strong, well-resourced public services in times of national crisis. Put simply, the money lost through illicit financial flows (IFFs) could have been used to properly equip hospitals and train health workers – as well as bolster other public services, like social care and community support.
“Those profiting from tax avoidance and evasion remain largely insulated against the effects of the virus.”
Instead, in the UK, the NHS goes chronically underfunded; in the US, a wasteful and inefficient private healthcare system has made health a luxury rather than a right; and throughout Europe, hospitals routinely struggle to access vital resources.
And those profiting from tax avoidance and evasion remain largely insulated against the effects of the virus. Able to pay for private healthcare, stock up on essential provisions and avoid areas where contagion is likely (such as shops, public transport and workplaces), the wealthy’s experience of the pandemic is worlds apart from the majority’s.
As the virus continues to spread, experts are warning that next in line could be some of the world’s most vulnerable people in the global south. Lacking even basic healthcare provisions, a coronavirus outbreak in countries would be dire.
About one billion people — 30% of the world’s urban population — live in slum-like conditions. With little ventilation, drainage and sewerage facilities, diseases spread quickly and easily, and so-called “social distancing” is impossible.
Perhaps even more worryingly, three billion, nearly 40% of the global population, lack basic hand washing facilities.
For this vast number of people, watching the coronavirus shut down country after county in the developed world must be terrifying.
Presently, African countries, for example, have access to just 1% of the world’s financial resources for health, but bear 24% of the global burden of disease. And, in 2019, cash-strapped African governments struggled with a health financing shortfall of $66bn a year.
But things needn’t be this bad. According to a report, Trapped in Illicit Finance, published by the international development charity Christian Aid, public revenue losses from IFFs in developing countries amount to around $416bn annually. While it’s too late to reappropriate that money, the lesson couldn’t be clearer: there is a huge human cost to tax evasion and avoidance.
In the meantime, to give the global south the best chance of weathering the incoming coronavirus health crisis, the International Monetary Fund and the World Bank should delay loan repayments and allocate new loans (and grants) to the poorest countries. Thankfully, it looks like that will happen.
If anything good can come from this crisis, it should include a focused and committed global declaration to eliminate tax evasion and tax avoidance.
In the UK, this could include extending and strengthening existing anti-avoidance tax legislation such as IR35 and continuing to remove other loopholes that allow corporate tax dodging. Though it’s difficult to say exactly how much money governments could reclaim by closing the most glaring tax loopholes, we can safely say the total would be hundreds of billions.
That’s surely a good long-term goal for the UK, and other countries too.
Peter Marshall works for the NGO Christian Aid and manages communications for Citizens for Financial Justice, a European network that includes Christian Aid