03 September 2016

Multinationals & Tax

This morning in the UK we are treated by the Chancellor of Austria whining to the media that "Amazon and Starbucks 'pay less tax than Austrian sausage stall'". Just to be clear Chancellor is the title of the head of the Austrian government. As head of state he is in charge of the country's legislative program. The buck stops with him. So WTF?

The Neoliberal program has been to deregulate the world of business to allow capitalists to pursue profits with as little hindrance as possible. Governments have enacted laws to make it easier to set up businesses, to do business in their countries, they have lowered tax rates, designed tax laws with plenty of opportunity for tax avoidance, and even handed out subsidies. The fact that the whole developed world pursued this free-market utopia at the same time opened the way for multinationals to avoid paying taxes anywhere. For the smart management accountant, this is like a 10-20% boost in income. This is on top of subsidies and incentives offered by governments to business to come to their country to make up for the fact that internally, Neoliberalism has failed to produce sufficient employment opportunities to keep everyone working. So of course these companies grew rapidly and expanded across the globe. First-world governments like Austria made it happen.

Ireland are currently fighting a court battle in order not to have to accept £11 billion in unpaid taxes from Amazon. They must believe that the benefits of Amazon being head-quartered in Ireland are greater than the lack of £11 billion in tax revenue (and the only other contribution Amazon make is low paid jobs with harsh working conditions). In the UK our government thinks it is so great having Amazon do business here that in 2013 we paid them more in subsidies and incentives than we collected from them in taxes (Telegraph), and we cut the welfare bill for disabled people in order to afford it. One of the largest most profitable businesses in the world needed a fucking subsidy? This week in the UK we also learned that the heavily publicly subsidised rail company, Southern Rail, declared a profit of £100 million, despite having one of the worst records of any rail company in history.

This is what people call socialism for the rich. Neoliberal governments are happy to subsidise the dividends of shareholders in large companies, but continually scold the poor who might get "something for nothing". If you get a modest welfare payment for being inadvertently unemployed, we might make you work for free stacking shelves in a supermarket, so that you are not morally corrupted by getting something for nothing. But if you make profits of £100 million, we'll not only let you get away with providing an appalling bad service in our name, we'll reward you to the tune of £25 million that effectively goes straight into pockets of offshore shareholders (who also pay no tax in the UK). And governments appear to consider that no moral hazard occurs for the companies or their shareholders from this enormous helping of something for nothing (or in Southern Rail's case, something for less than nothing). This is fucked up.

There are three factors of production: land, capital, and labour. Land includes land itself, and anything underneath it. Land produces rent; capital produces profit; Labour produces wages. But of course capital can only produce profit through the application of labour. Land however produces rent even when no effort it made - land value simply goes up these days.

We basically don't tax land in the UK because landowners are too powerful (the major landowners are institutions and families whose roots stretch back to the Norman invasion of 1066). So landowners constantly reap gains in wealth for no effort and pay no tax on it. Nowadays only small to medium businesses pay tax on profit. Large businesses, the multi-nationals effectively pay no tax because they hide their profits in various ways. So the burden of paying for infrastructure, health, social security, and education falls on taxes paid on wages, supplemented by indirect taxation on spending (which falls more heavily on those who spend a greater proportion of their income, i.e. workers). The irony here is that since 2008, Neoliberal economic policies have been forcing wages down in real terms, as well as with respect to low-inflation or even deflation. So the government's tax receipts continue to fall despite small rises in GDP (UK GDP per capita is stagnant, GDP is rising partly because of immigration).

For the past few decades governments have been selling off public assets to foreign investors to try to make up the shortfall. What happens when we run out of assets to sell? Those assets used to generate income as well as having intrinsic value. How long can a govt continue to divert its income streams to foreign companies that pay no tax here? Ironically, there is a flow of capital into the UK still. Millions is being spent by foreign investors on London property. The world's drug cartels and kleptocrats launder their money by buying up flats in Mayfair and Park Lane. In doing so they force up the prices 10 times faster than the consumer price index, and increase their own wealth in the process. The property bubble won't burst as long as corrupt African dictators, Russian oligarchs, Chinese government officials, and Columbian drug lords can keep buying up property. If it does burst the average house-owner will bear the brunt of the collapse.

And all this is how governments have deliberately structured Western economies. It's not the result of an accident, or some sneaky plan by Amazon or Starbucks to take over the world. No. Successive governments of all stripes have drafted, argued for, voted on, and enacted the legislation that makes all this possible. Politicians set this system up after World War II.

So to see the leader of one of these countries whining like a fucking child to the media that Amazon and Starbucks don't pay their fare share of tax is, to say the least, disingenuous. It is farcical. The leader of Austria is perhaps not the only person with power (no doubt he has a finance and/or taxation minister as well), but he is certainly the key figure for changing the situation in his country. It is his job to set the legislative agenda for his country. He needs to change the law so that making a profit in Austria requires any business to pay tax. If he believes he cannot do this alone, because his country is an EU member for example, then he needs to introduce legalisation into the European Parliament. Most member states are suffering the same problem because some members have set up as tax havens. So get together and sort it out.

No amount of crying over spilt milk is going to solve this problem of large multinationals not paying tax. The one and only thing that will make a difference is new tax legislation. That is the role of government. The one and only role of government. It's not for government to cry to the people that things are going wrong. We know already. It's for government to propose and enact solutions to problems. We voted them in for this purpose, not to whine like infants about the situation their class created.

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