Guest blogger: tax and health
"The Commission on Social Determinants of Health (CSDH), set up by the World Health Organisation, may seem an unlikely source of support for reform of international rules on taxation. But the Commission’s report goes far beyond the immediate causes of ill health to the “causes of the causes”. So, not only does it identify the lack of public revenues for health care, education, water and sanitation, social protection and effective regulation as a central cause of health inequity – it also goes on to highlight the faults in the international system which give rise to revenue shortages, particularly in developing countries.
Among the report’s recommendations is that “New national and global public finance mechanisms be developed, including special health taxes and global tax options” (Recommendation 11.2, p124). The main text of the report provides some broad indications of what this might entail.
The report highlights the problem of tax competition repeatedly, including the role of tax havens, characterising this as a “fiscal termite” through which “Globalization has limited the ability of governments to collect taxes” (Box 11.7, p127). It cites TJN estimates of the value of annual revenue losses from personal assets held off-shore at $160bn per year – “about the estimated value of the additional development assistance required to reach the MDGs” – arguing that “Measures to combat the use of offshore financial centres to avoid national tax regimes would provide resources for development at least comparable to those made available through new taxes” (p124).
It also highlights the potential for transnational companies to avoid taxation through transfer price manipulation in intra-company trade (sales between different parts of the same company in different jurisdictions). In a box quoting the findings of Jens Martens, the report says that “effective taxation of transnational corporations” is “an essential element of an efficient tax system”, and that tax holidays or tax incentives for transnational investors in export processing zones are counterproductive. It also quotes Martens’ proposal that “all publicly-traded companies should be required to disclose information about taxes, royalties, fees, and other transactions with governments and public sector entities in all of the countries in which they operate” (Box 11.6, p125).
On a more general level, the report quotes Martens’ call for increased inter-governmental cooperation and improved coordination of taxation internationally, and notes (though without explicitly endorsing) proposals for a new International Tax Organisation.
It also goes further, arguing that “The increasingly globalized nature of economic practices, including offshore tax havens, provides a strong argument in favour of the development of a system of global taxation” (p125). It highlights proposals for a currency transactions tax or a Currency Transaction Development Levy, stressing that “taxing financial transactions to raise revenue for development is now widely regarded as both feasible and appropriate” (p125)."
A full copy of the commission's report can be found here. For those interested in exploring this further, but without the time to trawl through it all, David has also written a useful synopsis of the report here.
We would also like to highlight a couple of direct quotes from the report itself:
"Evidence suggests that income redistribution, via taxes and transfers – the latter of which are key to social protection – are more efficient for poverty reduction than economic growth per se (Paes de Barros et al., 2002; de Ferranti et al., 2004; Woodward & Simms, 2006a)."
"Low-income countries often have relatively weak direct tax institutions and mechanisms and a majority of the workforce operating in the informal sector. They have relied in many cases on indirect taxes such as trade tariffs for government income. Economic agreements between rich and poor countries that require tariff reduction can reduce available domestic revenue in low income countries before alternative streams of finance have been established. Strengthened progressive tax capacity is an important source of public finance and a necessary prerequisite of any further tariff-cutting agreements. At the same time, measures to combat the use of offshore financial centres to reduce unethical avoidance of national tax regimes could provide resources for development at least comparable to those made available through new taxes. As globalization increases interdependence among countries, the argument for global approaches to taxation becomes stronger."