Richard Murphy | Towards a New Tax Consensus

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Richard Murphy | Towards a New Tax Consensus

The following excerpt is from the Executive summary of a paper on Tax Reform written by Tax Justice advocate Richard Murphy and published by a new UK leftwing think tank, Class: Centre of Labour and Social Studies, which was set up by Unite in the UK, the GMB and the Institute of Employment Rights and has the support of a growing number of trade unions. According to the About page:

Through high quality, intellectually compelling publications and events Class seeks to shape ideas that can inspire the trade union movement, cement a broad alliance of social forces and influence policy development to ensure the political agenda is on the side of working people.

The topics of Richard’s paper include:

  • Tax and political economy—the missing link
  • What is tax?
  • What is tax for?
  • The case for progressive taxation
  • A tax justice consensus

As the Executive Summary indicates, while the discussion is about UK taxation the trends illustrate a similar pattern throughout OECD taxation policy, one summed up regularly as pertaining to the ‘Washington Consensus’.

For more than thirty years the politics of the UK and most other western democracies has been dominated by a notable and consistent adherence to a single consensus on tax issues. That persistent policy approach has been built around what has been described as the Washington Consensus. That agenda, which translated neoliberal thinking into policy prescriptions, had powerful implications for the political economy of tax.  The Washington Consensus decreed that top rates of income tax should be reduced, corporation tax rates should be cut, capital controls that prevented the use of tax havens should be eliminated, indirect taxes such as VAT should be increased and their scope broadened whilst the use of tax revenues for social purposes, such as benefit payments should be restricted.

The impact of the Washington Consensus on UK taxation is easy to identify. Over a period of thirty years top rates of income tax have fallen from 60% to 45%, corporation tax rates will have more than halved, the use of tax havens by UK based multinational corporations is now officially sanctioned and even encouraged by tax law whilst VAT is at its highest ever rate.

In Ireland of course, the tax rate came down to 41%, moving south 3% since 2000 and is 12th lowest in Europe tying with Slovenia. Corporation tax is 12.5% since 2003, the lowest in the EU and Ireland has the second lowest tax take in the Eurozone, a situation made worse by unemployment, slashed wages, a depressed domestic economy and the property crash, but also rather odd given Ireland ranking by Forbes in 2010 as the  “no.1” place to invest, and as Dhaval Joshi of BCA Research notes, that while Ireland accounts for 0.3% of global GDP it still manages to provide 3% of world trade in services and 6% of trade in pharmaceuticals. “Ireland ranks third in the world for foreign direct investment, on which the return is 17%, compared with 6% in Germany”. Why it provides so little of global GDP but accounts for so much of sales in services and pharmaceuticals might be explained by a lack of adequate transfer pricing rules, no CFC legislation (mentioned at the end of the recent Taxation Trends in the EU report) and in the case of companies like Apple and Microsoft who use an Unlimited Company status (in the case of Microsoft its Flat Island Co) allowing them to hide whatever they earn from sales within Europe, Africa and the Middle East from Irish revenue. This means that the vast majority of the revenue from this trade only passes through Ireland – bumping national GDP figures (distorting our  the debt to GDP ratios forcing us beyond what we can realistically pay) but doing nothing in terms of tax revenue that these figures would suggest.  All this investment also saw no increase in employment between 1990 and 2008, according to Forfas data.

So obviously what Richard Murphy suggests in a UK context goes double here.

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Donagh is the editor of Irish Left Review. Contact Donagh through email: dublinopinionAtgmail.com