Society relies on a social compact. Time for tax-avoiding multinationals to sign up

Pat Leahy: The political centre needs to force big business to pay its way

Tax avoidance: if a country behaved like Apple – which is richer than many countries – it would be regarded as a rogue state. Photograph: Jaap Arriens/NurPhoto via Getty

Tax avoidance: if a country behaved like Apple – which is richer than many countries – it would be regarded as a rogue state. Photograph: Jaap Arriens/NurPhoto via Getty

 

Western countries are by and large the most civilised, comfortable and desirable places to live in the history of mankind. If, in a version the “veil of ignorance” thought experiment, you could choose any time or place to live, not knowing your race, abilities, talents or gender, you’d be mad not to choose to be born into a modern western country, probably one in the European Union.

If you think otherwise, you probably haven’t been paying much attention to how life is lived in much of the world. Eamon Dunphy and others who decorate our national life are periodically given to describing Ireland as a kip. No doubt there are many things that we should do better, some of them much better. But one wonders where they would like to live instead.

The western countries in which we have the good fortune to live are the product of many things, none of which any of us can claim any credit for. The Roman Empire. The Renaissance. The Reformation. The Enlightenment. The pillars of law, property, science, individual rights. The economic strength these traditions begot allowed our countries to become rich; the postwar European settlement, underpinned by American military protection, shared the fruits of that prosperity across our societies.

The latest revelations of widespread tax avoidance suggest that the social compact that enabled the creation of our societies is seriously under threat

So countries built welfare states, public health and education systems, and so on. Ireland spends a third of its annual budget on its welfare system. Six in 10 school leavers go on to third-level education, the highest proportion in the EU. The extent of states’ involvements and responsibilities is politically contentious. But the general social compact, based on a solidarity that held all members of society to be part of the same national project, was not.

The rules that implemented all this were the political achievement of the great centre-right and centre-left parties of Europe. In Ireland we had our own special case of this, but to the same ends. And even though governments changed all the time – these are, after all, democracies – the basic European system stayed intact. Electorates wanted it, and the political and financial elites did, too. Each recognised it served its own interests.

That system has been put under immense pressure since the crash, as the jarring correction in public finances required cuts to welfare budgets and entitlements. Globalisation shifted jobs to cheaper, developing countries. Populists from right and left challenged the old centrists.

The latest revelations of widespread tax avoidance by the super-rich and by multinational corporations in recent years, reported in the Paradise Papers this week in The Irish Times and other newspapers prepared to spend time and money on this kind of thing, suggest that the social compact that enabled the creation of our societies is seriously under threat.

Enormous tax avoidance not only strips national treasuries of the means to fund the public goods of modern societies but also destroys the idea of social solidarity and the requirement that, because everybody benefits from the state, so everyone should fund it.

That Bono does business in Malta and Mrs Brown’s Boys actors pay themselves through Mauritius is mightily entertaining, and we should bear this in mind the next time we hear lectures on social justice from these quarters. But the real juice is at the corporate end of things.

The aggressive tax avoidance of the world’s largest companies is an enormous threat. If a country behaved like Apple, Google and the rest of them – and they are richer than many countries – they would be regarded as rogue states. But what they have done is not illegal. They have followed the law. Yet laws can be changed. It is to the politicians of the governing centre that this task will fall.

As ever, things are a little more complicated in Ireland. For endless hours last week Minister for Finance Paschal Donohoe sat in Committee Room 2 at Leinster House, going through the Finance Bill line by line with Opposition deputies, notably Pearse Doherty of Sinn Féin, Michael McGrath of Fianna Fáil, Joan Burton of Labour and, often, Richard Boyd Barrett of Solidarity – People Before Profit. There aren’t many seats in the room, but you can watch it online. This is the sausage making of politics: tedious, unglamorous, unregarded, necessary.

But the debates often ascended beyond the individual legislative clauses and amendments to the principles underpinning Ireland’s facilitation of multinational tax avoidance (because that, unquestionably, is what it is).

Apple pays peanuts in tax, but it hands over the nuts in Ireland, and in the past three years those peanuts have amounted to €1.5 billion

Doherty argued that we were a central part – not just a bystander, or a bit player, but a linchpin – of a global system that allows multinationals to pay relatively tiny amounts of tax.

Donohoe responded that Ireland plays by the rules, that we are wholly supportive of OECD efforts to address the problem and that as a Minister of the Irish Government he must act in the interests of the Irish people.

They’re both right. If Donohoe clobbered the multinationals, by changing Irish tax laws overnight, it might make him feel more virtuous briefly, but it would also leave him with a giant hole in his finances. Apple pays peanuts in tax, but it hands over the nuts in Ireland, and in the past three years those peanuts have amounted to €1.5 billion.

The only solution is to have governments move together. The prospect of that seems remote. But not to do so endangers the building blocks of our political and social construction.

Paschal Donohoe is a student of political ideas as well as a politician, and he is fond of talking about the need to defend and strengthen the centre. If the political centre is to survive it needs to stop global tax avoidance.

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