I had the honour of giving a keynote address at the World Bank/International Monetary Fund annual meetings on 15th October 2017, for an event entitled ‘Technical challenges and solutions for taxing wealth in developing countries’ – which gave the impression that a new Washington consensus on tax justice may be emerging.
My slides and the video, kindly provided by the Bank, are below. Following a fascinating speech from Brooke Harrington of Copenhagen Business School on the role of wealth managers in creating anonymous, un-taxed assets, I ran through the development of the tax justice movement and the rise of the core policy platform (the ABC of tax transparency), highlighting the progress that has been made but also the extent to which lower-income countries remain excluded from the benefits – and what is necessary to enable effective wealth taxation.
The event, and the discussions with a variety of experts and senior figures from the two Bretton Woods institutions (BWIs), made clear just how far both the Bank and the Fund have moved towards tax justice – and also highlighted some key areas where they need to make progress now.
Criticisms of the BWIs
The main criticisms of the IMF have centred on its leading role in promoting a ‘tax consensus‘ that not only lacks a sound economic rationale, but that has demonstrably damaged the benefits of tax for many lower-income countries. The approach, in simple terms, has emphasised indirect taxes at the expense of direct taxes; VAT over trade taxes; set a low revenue ambition, and left redistribution to be done through (limited) expenditure. More than ten years ago, the Fund’s own Fiscal Affairs Department – and Michael Keen in particular, now the department’s deputy director – published research showing how the introduction of VAT on this basis failed to replace crucial revenues for lower income countries. Equity, too, has long been an element of the Fund’s thinking. But for many years the organisation’s country advice, where policy decisions are influenced, continued to bang the same drum.
The Bank, meanwhile, was recently the subject of an excoriating assessment by its independent evaluation office. In addition to identifying the absence, very commonly, of sufficient expertise on tax issues within the Bank – even as it provided country after country with policy advice – the report highlights the almost complete absence of both efficiency and equity as priority issues within the advice given.
Additional criticisms of the Bank’s approach to tax focus on two further areas. First, the Bank has had a longstanding collaboration with the big 4 firm PwC. Yes, the PwC at the heart of the LuxLeaks scandal, promoting one of the most egregious schemes to its multinational clients through which secret tax rulings from the Luxembourg government enabled profit-shifting from countries all around the world on an industrial scale. The collaboration involves the Paying Taxes component of the Bank’s Doing Business Indicators, which promotes and incentivises governments to enter into a race to the bottom on corporate tax. And second, the Bank’s International Finance Corporation (IFC) has long resisted any serious suggestion that it find a way of investing in lower-income countries that doesn’t replicate the worst private sector practices in terms of secrecy jurisdictions being used as conduits (which UNCTAD has shown to cost lower-income countries around $100 billion of lost revenues each year).
Progress and opportunities
For both the Fund and the Bank, it’s possible to identify quite dramatic progress – at least in terms of rhetoric – over the last few years. The IMF has led the way in re-evaluating the damage done by inequality, from Christine Lagarde’s frequent statements to the work of researchers concluding that even a goal of economic growth – to say nothing of human development – is best served by reducing inequality, including specifically through redistribution via the tax system.
The World Bank has begun to address its historic neglect of the area by assembling a global tax team – which on the day of our event took on a more solid role within the Bank’s structure, as a formally recognised ‘unit’: the Domestic Resource Mobilisation Unit. It’s even possible (whisper it) that the Bank might conduct research around the wider question of estimates of illicit financial flows – which would again mark a significant step forward from the late-200os U-turn on then president Bob Zoellick’s commitment to Norway to produce a Bank-researched volume on the subject.
Finally, our session itself represents quite striking progress. While issues of equity have also been a feature of tax research in the Fund’s Fiscal Affairs Department at least, there has been little space at the level of the BWIs as a whole to think creatively about expanding direct taxation and its redistributive impact. It is genuinely striking then for the annual meetings, their most high-profile event of the year, to feature a session on taxing wealth – especially one with such a strong tax justice flavour.
And for that session to finish with the presentation of joint work between the Fund and the Bank, to put together standing resources on tax policy, left a very positive sense of an agenda that is really opening up in Washington. It’s too early to say tax justice is the new Washington consensus – but we’re closer than could have been imagined, even five years ago.
The video of my keynote address is here:
The slides are here:
And here’s the full video including introductions, Q&A and Brooke Harrington of Copenhagen Business School on the role of wealth managers in creating anonymous, un-taxed assets, well worth watching. You can find her excellent book “Capital without Borders: Wealth Managers and the One Percent” here.