Suzanne Lynch: Ireland is complicit in raising global inequality

Corporate tax regime allows global giants to avoid paying their fair share

Davos: This year, the World Economic Forum was once again haunted by the question of wealth inequality.  REUTERS/Ruben Sprich

Davos: This year, the World Economic Forum was once again haunted by the question of wealth inequality. REUTERS/Ruben Sprich

 

As the sun went down on another World Economic Forum, and the last helicopter left the skies over Davos, debate had already begun about the purpose of the annual meeting of business leaders.

This year, the forum was once again haunted by the question of wealth inequality.

An Oxfam report published on the eve of the summit presented stark reading. Just 62 individuals own the same wealth as the 3.5 billion people at the bottom half of the world’s income scale. Further, the gap is widening – just five years ago, 388 billionaires were needed to reach that ignominious statistic.

This year’s theme – the Fourth Industrial Revolution – explored the impact of technology advances on labour markets. A report by the forum estimated that five million jobs could be lost by 2020 as a result of advances in automation and artificial intelligence.

A more interesting question was how this will affect social equality. Will changing work patterns simply help the rich get richer, or do they offer an opportunity for emerging countries to “narrow the gap”, as Rwanda’s president Paul Kagame said on Wednesday?

Taxation

A central part of the debate centres on taxation. In its report Oxfam highlighted the role of “an ever more elaborate system of tax havens” in deepening the divide between rich and poor. Quoting Warren Buffet’s famous line that he pays less tax than his cleaner, it argues tax avoidance is a glaring example of how the rich entrench their wealth, while forcing governments to curb investment in vital public services.

A familiar riposte is that taxation systems have simply not kept up with globalisation and the fact that more companies work across borders. To an extent this is true and the new OECD Beps rules (though not binding) go some way to addressing this problem.

Tough questions

But on another level, unfair tax practices are a result of government policy. As economist Joseph Stiglitz pointed out during a panel discussion with Enda Kenny in Davos, the highest earners in the US pay an average of 15 per cent of tax. That’s a political decision.

Ireland needs to ask itself some tough questions about its role in the world’s web of aggressive tax planning.

While many in Ireland, as elsewhere, expressed outrage at the findings of the Oxfam report, Ireland is complicit in the global system of aggressive tax planning that is deepening the world’s wealth divide.

Of the 28 countries in the EU, we are the most heavily invested in propping up aggressive tax planning through its corporate tax regime. The double Irish tax structure pioneered in the 1980s – abolished in the 2014 budget – was designed to allow firms to slash their tax bill.

Silence on ethics

The fact that multinationals pay much less tax than most individuals is profoundly unethical. But the issue rarely gets substantive public debate in Ireland. Successive governments have clung to the sanctity of the corporate tax regime, a position that appears to be supported by Irish voters. We have cocooned ourselves into thinking we have a right to encourage firms to avoid paying their share of taxes.

Also, for most countries in Europe the notion that a prime minister would offer his phone number to businesses, as Enda Kenny did during a trade trip to the US in 2014, would raise serious questions about the relationship between politics and business.

While Irish politicians fawn over US multinationals, countries such as Germany, France and Britain display a healthy scepticism towards tech giants such as Google, Amazon and Facebook as they skirt ever closer to the wind in data protection and tax laws.

Corporate tax avoidance was an issue on the doorsteps during the 2014 European elections in countries such as Finland, Austria and Germany, as citizens got fed up with being asked to pay more taxes while multinationals were helped to cut their tax bills by governments.

Not so in Ireland. The fact that Irish people were required to shoulder tax hikes during the bailout while companies were given a free pass on tax rarely registered as a serious argument. To this extent, the position of our hard-left parties is bewildering. Left-wing politicians were protesting again in Dublin over the weekend about water charges – an equitable tax – but will mount no serious challenges to the corporate tax regime.

The reason most Irish people turn a blind eye to the issue is obvious – the jobs provided by multinationals override any twinges of guilt.

But the next time Irish citizens raise concerns about the world’s inequality gap, maybe they should ask themselves what role their country is playing in perpetuating the world’s wealth divide.

Suzanne Lynch is European Correspondent

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