This contribution is published as part of the UNRISD Think Piece Series, Overcoming Inequalities in a Fractured World: Between Elite Power and Social Mobilization, launched to coincide with a major UNRISD Call for Paper Conference by the same name. In this series, experts from academia, advocacy and policy practice engage with the topic of inequality by critically exploring the various causes of deepening inequalities in the current context, their implications for sustainable development, and strategies and mechanisms being employed to reverse them as part of the global conversation on inequalities leading up to the review of Sustainable Development Goal 10 at the UN High-Level Political Forum in July 2019.
At the heart of inequality is uneven access to key human rights such as health, housing and adequate living standards. Effective taxation is fundamental to addressing inequality in this form: by funding access, it creates a pathway for the progressive realization of human rights. Yet the links between inequality, rights provision and taxation have not always been clearly made in policy or in activism. Holding governments to account for their human rights obligations is more than a political or legislative issue—it is a fiscal one. And so, the role of the state in resourcing and funding the provision of rights as a means to combat inequality is often overlooked in policy and activist spheres. Governments must meet their human rights obligations by developing adequate and appropriate economic, social and cultural policies. Citizens are then able to hold their government to account for these obligations when they are underpinned by domestic legislation.
is Strategic Programmes Researcher at the Tax Justice Network
According to the existing international legal framework, signatories are obliged to realize their citizens’ economic, social and cultural rights. The International Covenant on Economic, Social and Cultural Rights states:
"Each State Party to the present Covenant undertakes to take steps, individually and through international assistance and cooperation, especially economic
and technical, to the maximum of its available resources
, with a view to achieving progressively the full realization of the rights recognized in the present Covenant by all appropriate means, including particularly the adoption of legislative measures." (emphasis added; Part II, Article 2.1)
Governments of the 169 states who have ratified the Covenant must take "all appropriate measures" including broadening and deepening the tax base, in order to strengthen and support the policy and legislative measures mentioned above. Take, for example, health care. The right to health is materially absent without hospitals, clinics and medical supplies and requires social infrastructure, all of which needs to be adequately funded. A lack of funding is often seen as the biggest barrier to poorer countries being able to fulfil their obligations, but even in developed countries less and less money is being made available for areas of public policy essential to fulfilling rights. Why is there such a lack of funds?
In the global North and in Europe in particular, the decade-long flirtation with austerity policies has eroded both the ability to capture revenue, due to the lowering of corporate income tax rates for example, and to enforce revenue collection, by weakening the ability to detect tax evasion and avoidance. In the United Kingdom, for example, Her Majesty’s Revenue and Customs (HMRC) is now 40 percent less resourced in real terms than in 2000. In the United States, the Internal Revenue Service (IRS) has had its enforcement budget cut even though the Congressional Budget Office recognizes that for every USD 1 spent on enforcement, USD 6 comes back to the US Treasury. While capacity to detect, prevent or even audit tax abuses continues to weaken, harmful tax practices including tax avoidance schemes continue unabated and corporate tax cuts are increasing—the latter amounting to a revenue giveaway. In lower-income countries, low domestic capacities for collection and enforcement aside, national treasuries lose a large amount of revenue through tax avoidance schemes and tax evasion. By the Tax Justice Network’s estimates, USD 500 billion is lost globally to tax avoidance by multinational companies
. Of this, USD 200 billion is borne by lower-income countries, for whom this amount represents a much larger portion of their tax revenues than for richer nations. Africa alone loses USD 50 billion on an annual basis, which is more than the annual development aid flows into the continent intended to correct the lack of social and physical infrastructure.
Revenue alone cannot guarantee rights. Public service and social protection programmes have a unique and important role to play in ensuring access to rights. Universal health services, education and water, in tandem with social policies such as pensions, unemployment insurance and welfare benefits, are important mechanisms to ensure that access to rights is not limited to only certain citizens. It is in this context that the last decade of austerity policy has drawn criticism for creating uneven access and for contributing to inequality. From Spain to Greece to the United Kingdom, cuts to public services and social protection have led to the erosion of rights in those countries especially with regard to health, housing and food. Also under scrutiny are the IMF and the World Bank for decades of advice that favoured fiscal consolidation over guaranteeing a set of basic social security guarantees for citizens in lower-income countries. This has led to chronic under-provision of rights for those that are unable to pay for private services where public provision is either scant or of very poor quality.
In addition, domestic taxation systems are not always constructed in a way that contributes to realizing social, economic and cultural rights. IMF and World Bank advice has tended to favour the implementation of sales or consumption taxes such as value added tax (VAT). VAT is a regressive tax which puts the burden of raising government revenues on the already overburdened—people with lower incomes. Governments sometimes also add to the squeeze on revenue by lowering corporate income tax rates and offering a menu of business-friendly tax incentives and other ‘sweeteners’. Wealthy individuals and multinationals are then able to legitimately keep their wealth out of the tax net. In terms of personal income tax, in countries such as the UK
and the United States
, tax breaks increasingly benefit the top 10 percent at the expense of the bottom 10 percent. Inequalities are also intensified by individuals hoarding and hiding wealth in offshore trusts and other opaque legal vehicles, to the tune of a staggering USD 7 trillion globally. There are tools available to address this issue, such as wealth taxes and global public registers of assets and their beneficial owners. A just tax system needs to address the issue of private wealth accumulation in order to safeguard public interests and to halt the widening inequality gap.
Movements for change
A global tax justice movement is on the rise to address these issues. Many civil society organizations support initiatives like the Tax Justice Network’s ‘ABC’ policy platform
which has financial transparency as its central theme but also contains the means to create tax justice outcomes that tackle inequality. ‘A’ stands for supporting the Automatic Exchange of Information
between financial institutions and between jurisdictions; ‘B’ is for legislating to establish public registers of Beneficial Ownership
; and ‘C’ is for making Country by Country Reporting
by multinational companies public in multiple jurisdictions. This policy toolkit aims particularly at preventing the movement and the obfuscation of wealth by rich individuals and large corporations in order to halt the diversion of revenue away from positive redistributional policies, such as funding social protection, and to restore accountability between the state and its citizens. The movement around tax justice and human rights also boasts significant civil society and academic support for advocacy tools like the Lima Declaration on Tax Justice and Human Rights
(2015) and the Bogota Declaration on Tax Justice for Women’s Rights
There is also a growing discussion of tax issues at the United Nations, with the High-Level Political Forum on the Sustainable Development Goals and the Financing for Development Forum bringing to the forefront questions of revenue and redistribution in relation to human rights globally. Human rights instruments have also provided opportunities to examine a range of tax injustices and their cross-jurisdictional impact through periodic reporting under treaty convention and covenant, such as the Convention on the Elimination of all Forms of Discrimination Against Women (CEDAW) reporting process. In 2016, the CEDAW Commission sanctioned Switzerland on its role as a tax haven and the impact it has on women in developing countries unable to realize their rights because state money has been siphoned off to Swiss bank accounts.
Given the current political moment featuring competing narratives about the “necessity” of austerity, the “virtuous” rise of global philanthropy, and the “necessary” role of the state in guaranteeing adequate living standards, advocates for tax justice and human rights urgently need to bring a deeper and broader articulation of tax justice to national, regional and intergovernmental discussions. Each year advocates have the opportunity to join forces at global meetings of the IMF, the High-Level Political Forum on the Sustainable Development Goals, the Financing for Development Forum and many more. We should be bold in setting out a nuanced tax justice narrative. There is a powerful story to be told of the more comprehensive value of tax and how it underpins the fulfilment of human rights.
About the Tax Justice Network
Tax Justice Network
aims to bring attention to the impact of fiscal policy on human rights both at the domestic and international level. We explore the links between tax justice and human rights, and between national and international macroeconomic policies. We also examine how taxation can support the realization of human rights and address inequality beyond being a source of revenue. We analyse how tax can redistribute income and wealth, how it can redesign market prices in order to address social costs and benefits, and how taxation plays a crucial role in cementing the bond of accountability between state and citizen.
Icons by Andrejs Kirma and Corpus Delicti (Creative Commons via The Noun Project); composition by Sergio Sandoval.