Things seem to be getting bigger and bigger every day in the modern world – in fact, it’s increasingly assumed that unless you’re a big country you have no chance in the global economy. Consequently, when looking at a map of the world, people often wonder how small countries like Luxembourg, Lichtenstein, Jersey, and various islands in the Caribbean can keep on existing in this cut-throat world, with such small populations and no natural resources. The answer in many cases is through tax – not the tax of their own citizens, but that from other countries. Many of the smaller nations of the world have become what is known as ‘tax havens’.
Tax havens are like a reverse version of the famous character Robin Hood. While Robin stole from the rich and gave to the poor, the tax havens essentially take money away from the poor and give it to the rich. They operate in this way: rich people in larger countries like the US, UK, France, or Germany would normally have to pay a reasonable amount of their money in tax. This tax would be used to pay for hospitals, schools, and other services for the poorer people of the country, helping everyone to survive. But the rich instead move their money to a tax haven, where they often pay a tax of only 1-2%. The amount of money this raises is more than enough for the citizens of, say, Lichtenstein. But it means the rich people get to keep more of their money, rather than helping their fellow citizens.
Many tax havens are also known for their secrecy – after all, the rich do not want their home countries to find out about how much money they have, in case they insist that they pay their fair share of taxes. The secrecy of the banks in tax haven countries (most famously in Switzerland) is often exploited by corrupt leaders in developing nations, who take aid money and developmental loans and deposit the money in their own account rather than using it to help their people as intended. This has been a major factor in the debt crisis that places like Africa are in – the money still needs to be paid back by the citizens, even though their leaders have stolen it and placed it in tax havens.
In the UK, whenever it is suggested that taxes should be raised on the richest people to help pay for public services, the media will argue that such policies will end with the rich leaving the country and taking their money with them. In truth, their money is mostly already gone, it’s in Switzerland and Luxembourg and the Cayman Islands, where they can avoid paying any tax at all.
What is needed is concerted action from all of the countries of the world to shut down these tax havens by ostracizing them from the world economy until they agree to play by the same rules as the rest of us. This has already started to work with Switzerland, which was always the most vulnerable to pressure because it does not only depend on the income from its tax haven status. Legislation is now being put in place for Swiss banks to disclose information to US authorities to ensure the correct tax is being paid. Now we need to place the same pressure on smaller tax havens, while also offering help with diversifying their economies towards more useful and productive work. The rich will oppose it, because the current arrangement works in their favor – but we must ignore their self-interested claims and realize that by shutting down the havens we can ensure that tax money is used to pay for services rather than for yachts.