How the G20 can help end poverty

Wednesday, January 30, 2013 - 09:23

I’m blogging on how civil society might strategically engage with the G20. Here are two areas in which the G20 could take a significant step forward towards ending poverty and ensuring economic justice.

Tax

One of the areas in which the G20 might be able to make a significant advance in the cause of economic justice is in the area of tax.

At the national level, progressive taxation policies are an integral part of what has made some societies more decent over the last 100 years. The idea that those who have more should pay more to the national coffers and that a significant part of this money should be redistributed to societies poorest through social welfare programmes of various kinds is widely accepted.

There are some exceptions – including to some extent the United States – where the tax regime has become more and more regressive. But that may be one reason that the United States is looking less and less like a decent society that respects the right to universal and good quality education, the right to health care including women’s reproductive health care, and so on.

Unfortunately, tax regimes in many developing countries are also regressive. Elites in places like Pakistan find ways to avoid paying taxes – many of which may be legal. Under pressure to raise revenues, governments resort to taxing consumption through things like a VAT tax, which even in developed countries tends to hit the poor hardest.

In places that have conflict or companies operating without much regulation, the situation is even worse, with companies using a highly untransparent international banking system to claim that much of their profits are made in tax havens such as Jersey or Mauritius, thereby avoiding tax obligations. People and companies operating in rich countries also benefit from these tax havens of course.

At the international level, there’s a lot that could be done to promote progressive taxation.

For starters, countries could agree to at least exchange information about which companies are operating within their borders and how much tax they’re paying.

This automatic information exchange would go a long way to at least letting us know the scope of the problem. At the moment it’s extremely hard to know how much revenue is being lost through things like tax havens. Tougher action on closing those tax havens would also be welcome.

To its credit, the G20 has been willing to at least discuss issues like tax havens (“non-compliant jurisdictions” in G20-speak), but so far the actions taken fall far short of what would be required to meaningfully reform a system that is grossly skewed in favor of the rich.

In 2009, the G20 commissioned a report (produced by the IMF, World Bank, OECD and UN) entitled “Supporting the Development of More Efficient Tax Systems”. As ActionAid has noted, the report includes strong language around tax justice including redistribution. Although falling somewhat flat on recommendations around the need for progressive tax, the report does contain strong recommendations on the need for tax transparency, and on treaties that allow companies to declare a greater share of their income in tax havens, a practice that we have highlighted in our report on tax avoidance by beer company SABMiller.

While the G20 has taken some actions over the years, including compiling a listing of tax havens, it has still fallen far short of implementing the recommendations from this report, perhaps indicating that there might be a fundamental problem.

Many of the G20 countries actually control one or more tax havens. This means that there are often powerful business interests in G20 countries lobbying hard for the situation to stay the same.

Remember, this means billions in additional profits for companies that often refuse to pay even minimal amounts of tax in the countries where they operate.

Food

Through its development working group (one of four) the G20 has taken up another urgent international issue – food security.

The right to food is one of the most basic human rights, clearly articulated in the Universal Declaration of Human Rights and other conventions. Yet the number of people living in hunger around the world is estimated to be nearly 900 million, and recent events including food crises and the financial crisis have led to an increase in food speculation and higher food prices.

In 2011, the G20 seemed poised to take significant action on agriculture. The French government had invested a significant amount of political capital in hosting the first ever G20 Agriculture Ministers meeting and a G20 commissioned report was released that included some strong recommendations on taking measures to keep food affordable for the world’s hungry.

The report, carried out by ten inter-governmental organizations, included strong language on the need to end subsidies and mandates for biofuels, which at one point were thought to be a low carbon alternative to fossil fuels but are now known to be problematic

This and other measures could have made a significant dent in the problem of global hunger, but the G20 hasn’t actually implemented most of the report’s recommendations.