Friday, July 27, 2012

The price of offshore finance

Studies on inequality focused mainly on income and failed to capture the missing wealth due to tax evasion, which means that global inequality is much higher than accounted so far .  A recent research  on the" price of offshore" - carried out by James Henry, the former chief economist of Mc Kinsey based on data from the World Bank, IMF, central banks, UN and the Bank of International Settlements - has estimated for the first time the private financial wealth deposited in tax havens. In fact, there are very few studies on private wealth, despite the wealth of information. The report  estimates that the global super rich people have hidden at least 21 trillion dollars in tax havens, which is equivalent to the  combined GDP of the US and Japan. However, this estimation is conservative as it takes into account only private financial wealth and leaves aside real estate, yachts and other non-financial assets. 

The research was promoted by the British NGO, Tax Justice Network , which opposes tax havens since "they are heightening inequality and poverty, corroding democracy, distorting markets, undermining financial and other regulation and curbing economic growth, accelerating capital flight from poor countries, and promoting corruption and crime around the world". The existence of countries without any fiscal transparency is indeed one of the causes of global poverty and the growing inequality between the rich and the poor. These resources are diverted from productive use, investment and labour and therefore have a negative effect on the financing of public goods such as infrastructure and education, especially in times of recession. This vicious circle creates a sort of 'black hole in the world economy" with terrible consequences on the lives of billions of citizen

According to the report, the leading 50 banks - of which primarily Credit Suisse, Ubs and Goldman Sachs- have transferred, at the end of 2010,  mores than 12 trillion of cross border investments on behalf of individuals, large corporations or foundations controlled by the super rich. This network of financial intermediaries explains the rapid growth of off shore finance.  

If the deposits were taxed at 30% a minimum gain of 3%, governments could collect 180 billion dollars ( 280 billion on the basis of a higher estimation of 32 trillion), more or less what the OECD countries allocate to aid to developing countries. This is without any doubt a concrete way to help getting out from the Great Depression. 

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