Inequality: What’s tax got to do with it?

Wednesday, January 13, 2016 - 10:58

Tax pays for public services

The people from the village are drawing a map of their area. They’ve marked all the health, education and water services they use, and marked which are government provided, and which are private providers at an extra cost. The map has little on it. There is no public school, and no public doctors. The place they get water from was built by a charity. This is a very poor community.

As they talk, the idea that government provides public services doesn’t really exist. To talk to someone who has the power to do something about it would be the district official, in the nearest district town, which along the unpaved mud road is a long distance.

This village, and others like it, along with organisations like ActionAid, have been asking governments for more money, to build the classroom, and pay the doctors, with demands for limited resources often competing against each other. It’s been important work.

But there is a rapidly growing trend to ask a new and powerful question. Not how is the money spent, but how is it raised? When impoverished governments point to empty budgets, we have some ideas of realistic changes that could radically boost budgets, and potentially the lives of its citizens, if well spent.

Governments around the world can’t keep making promises to reduce poverty and inequality, without addressing the question, where will the money come from?

We often think of charitable aid, flowing benevolently from “rich” to “poor” countries. But our analysis is that the flows of wealth are often the other way, impoverishing developing countries around the world.

Lost tax revenue

Rather than aid, or loans, tax is one of the most sustainable sources of government money. So far, poor and ordinary people are unfairly shouldering a lot of the tax burden, though hidden consumer taxes on the soap or salt they buy. But ActionAid and our allies in the global tax justice movement have shown how a large potential and wealthy tax contributor is being lost.

W hile private investors from foreign countries doing business in poor countries has increased over the last two decades, telling, the amount of tax companies pay has stayed in a dishearteningly flat line. In short, countries’ budgets are not benefiting much directly from this this business. There are lots of reasons that keep their tax take low.

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One of the reasons is that governments are simply giving the tax money away. Like the government in Uganda, which in 2012 gave away USD 272 million in exemptions on multinational companies’ tax bill. How much money is that? Enough to have doubled the health budget overnight. Or pay around 150,000 extra teachers a year. A lot, when you’re a village waiting for a school.

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The tax breaks to big companies could be worth it, if the government could point to the evidence that the investment has helped the country, but it’s a big problem when they can’t.

Pressured by powerful multinational companies, and the outdated belief that foreign investment automatically leads to development, poor countries are competing against each other in a tax race to the bottom.

Of course, this only represents the tax money that governments are choosing to give away, and not what multinational companies are avoiding through exploiting weak tax laws.

The current global tax system is broken; outdated and unfair. It is reducing poor countries’ ability to collect tax, and giving multinational companies a playground of loopholes to dramatically reduce their tax bill. And it helping rich countries stay rich, and poor countries stay poor.

Recently, when a majority group of the world’s poorer countries tried to push for a new global tax body that could help make rules fit for the twenty-first century, rich countries were forced to show their true colours and oppose it.

Progressive tax, progressively spent

The problem is compounded, as the less that governments raise and spend tax fairly, the more public services decline, and the more appetite it creates for private actors to step into the market and provide privatised services. The evidence from schools is that privatisation is reducing the ability for all children to get a quality education, especially girls.

Women, who often fill the gap where tax-funded quality public services don’t exist through working without pay to look after the sick, the elderly and the young, suffer with their bodies and time, making their disenfranchisement worse.

Communities holding governments to account for public services

But if you’re from that village in Uganda that we started in, with little access to government and few multinational companies or their products in sight, what does all this mean to you?

When we asked the people from the village, what a “fair” tax collection would look like, they did the same as most of the world does when asked this question – they were happy for some people to stay richer, and some people poorer, but they suggested a tax collection that created much less difference between each.

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ActionAid is working with the women, parents, kids, and young people, from villages and poor communities a lot like this one, to fight for the fairer tax systems that can pay for public services and reduce inequality.

For the villagers in Uganda who want a free quality education for their children, the tax justice journey is a long one. For women and men struggling for each day’s bread, to stop and take action on such issues is a generous use of time. The lifetime of a campaign to achieve this may be longer than their children’s education.

 

ActionAid’s Tax Power campaign is working in 20 countries across the world. ActionAid is part of the Global Alliance for Tax Justice.

With thanks to David Archer, Kas Sempere, Victorine Djitrinou, Emma Pearce, Fred Kawooya, Harriet Gimbo, Ednance Kizo and the circle facilitators of Busiki and Katikwi ActionAid local rights programmes.

This is shortened from an article in "Contemporary Challenges for Understanding and Securing Human Rights in Practice" published by the Institute of Commonwealth Studies Masters in Understanding and Securing Human Rights programme.