How tax havens are widening the inequality gap

The economic gap between the rich and the poor will continue to grow unless decision-making authorities of the world don’t come down hard on tax evasion by the wealthy.

This is according to Ronald Wesso, researcher and policy lead at Oxfam South Africa. Speaking at a press briefing at the Protea Hotel Parktonian All Suite in Braamfontein on 18 January, Wesso said that Oxfam International will be calling for an end to tax havens at the World Economic Forum (WEF) to be held in Davos, Switzerland from the 20th  to 23rd of this month.

Certain policy frameworks are sustaining inequality – one of these is tax havens, explained Wesso. Tax havens are offshore financial centres, characterised by secrecy and low- or zero-tax regimes, used by individuals to escape tax liabilities. Tax havens are making it possible for the wealthy to “hide” $7.6tr of their wealth – which is more than the combined GDP of the UK and Germany – in offshore accounts. This ensures wealth remains at the top.

“Tax havens enable the global elite to insulate and hide their wealth from government. This puts extreme pressure on government spending, which also cuts social spending on the poor,” said Wesso. Instead, these funds can go towards economic growth and can help government combat inequality.

The WEF is a gathering of key global decision makers. This will be an opportune moment to engage with them, according to Ayabonga Cawe, economic justice manager at Oxfam South Africa. “The outcome of economic decisions and interventions can be changed. It is in the power and capacity of decision makers to change it,” added Wesso.

According to the report An economy for the 1% issued by Oxfam South Africa, a third of rich Africans’ wealth ($500bn) is held offshore in tax havens. This costs African countries $14bn per year in lost tax revenues.

Oxfam International will demand that world leaders agree to a global approach to end tax havens and harmful tax regimes. The current global tax structure weakens the ability of governments to collect taxes, the report stated.

Widening inequality gap

Further statistics collected by Oxfam South Africa revealed that in 2015 only 62 individuals, 53 of them being men, owned as much wealth as the poorest half of the world’s population.  This wealth has risen 44% in the past five years since 2010, increasing by $542bn to $1.76tr.

In 1993, the richest 10% (3.7m) of the South African population had an income of $36bn. This is four times greater than the income earned by the poorest 50% of the population (19m), which only earned $9bn.

By 2011, after 17 years of democracy, the income of the wealthy (5m) had grown 64% to $69bn. This is six times more than the income earned by the poor (25m) who only earned $11bn. The income of the poorest half of the population only grew by 3%. Income inequality has become worse and will continue down this path, said Wesso.

Wesso believes there are four proven interventions that can close this inequality gap: introducing a minimum living wage, income grants, women-centred land reform and subsidised fees for services to the poor.

Wesso said we should be taking lessons from Latin America, where protest movements put necessary pressure on decision makers and forced them to move from self-serving polices to policies that had some benefit for the poor too.