The Panama Tax Scandal

This week we have been rocked by the Tax Avoidance scandal coming out of Panama, after a whistle-blower leaked more than 11 million documents from the law-firm Mossack Fonseca. This firm has spent the last 40 years helping their wealthy clients worldwide to hide money and so avoid tax, and the leaked documents revealed the names of many people from the world of business and politics who have benefited. It will come as no surprise that the wealthy business elite do whatever they can to avoid tax, nor will it surprise many people that the leaders of countries like Russia, the Ukraine and Argentina do similar things. However what is shocking is that Western leaders like the Prime Minister of Iceland (who has now resigned) and even our own Prime Minister David Cameron have also been implicated.

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David Cameron has got caught up in the ‘Panama Papers’ scandal. Picture © Willwal

We in the West have come to believe that institutionalised government corruption is essentially a Third World problem, but this leak reveals that not to be the case. Though it may be true that blatant corruption (involving ‘backhanders’, ‘cash in brown envelopes’, ‘family favours’ and the like) is virtually absent from Western politics, it has been replaced by a far cleverer but more insidious form of wrong-doing. Nowadays our wealthy elites employ armies of lawyers to find loopholes in the legislation, which mean they can avoid tax without actually breaking the law, and that often involves taking their money offshore to some tax-haven where rates are artificially low. Added to that many of these tax havens employ high levels of secrecy which mean it can be very difficult for the taxman to get to the bottom of what is really going on, and in such circumstances, with limited resources, the revenue services are often forced to abandon any investigations.

Many people have said that this is even more evidence that the government should change the law and clamp down on these loopholes, but what incentive is there for them to do that if our own leaders are using the loopholes themselves? Even worse, the fact that many Tory (and Labour) donors are also using tax havens and other tax avoidance techniques, creates a massive conflict of interest right at the heart of our democratic system. ‘He who pays the piper calls the tune’, and Party donations would soon dry up if any government made serious efforts to tackle the illicit wealth of their own donors (it’s worth remembering at this point that over 50% of Tory Party funding comes from the financial sector.*)

Consequently though our politicians love to make all sorts of statements about the ‘moral repugnance’ of tax avoidance, the reality is they do the minimum required to keep the public happy, while they and their mates carry on as usual. An example of this is the government’s recent clampdown on tax avoidance by small businesses, while at the same time blocking EU legislation to clamp down on abuse by offshore trusts, which is a much bigger problem*. The nett result? The government trumpets the fact it aims to cut tax avoidance by £12bn, which sounds huge, but neglects to mention that with tax avoidance running at an estimated £95bn/year, that represents only 13% of the total. Until we have sorted out the conflict of interest created by the private funding of our political parties, legislation will continue to be enacted (or not enacted) which puts the needs of the privileged and wealthy over the needs of ordinary people. And this tax avoidance scandal is just one more symptom of that.

* Tory Funding  http://www.theguardian.com/politics/2011/feb/08/tory-funds-half-city-banks-financial-sector

* Trusts http://www.independent.co.uk/news/uk/politics/david-cameron-intervened-stop-tax-crackdown-offshore-trusts-panama-papers-eu-a6972311.html

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