Two recent headlines should have meant much to Singaporeans but, unfortunately, they went under the radar. The first is Greece would have avoided bailout if itwere not for tax havens published by The Telegraph.$CUT$
The piece reported former Greece prime minister George Papandreou (left) lamenting that his country might not have needed a bailout if itseconomy had not been deprived of funds funneled to tax havens.
“It is our citizens that are beingrobbed,” he said, adding that the loss in tax revenue meant that the Greek government was unable to invest in areas like welfare andeducation.
It is important to temper Mr Papandreou’s sentiments. Much of Greece’s economic troubles stem from its lack of fiscal discipline. For years, the Greeks were living beyond their means and their government was no better when it came to balancing the budget.
Still, it is undeniable that the country has been deprived of much needed revenue when its wealthy avoid paying taxes by stashing their profits in tax havens like Singapore.
Experts estimate that the world’s billionaires and millionaires put away $21 trillion worth of funds in offshore tax havens and Singapore has been the beneficiary.
The mass inflow of capital has made us one of the richest, if not the richest, country in the world in terms of the number of millionaires per capita.
The US government is making the same complaint and has moved to crackdown on banks that facilitate Americans avoiding paying taxes by opening bank accounts in tax havens.
The second report U.S. companies brace for an exit fromthe Euro by Greece by the New York Times published on 2 September 2012 talks about how Greece would exit the Euro because it would have to default on its loans. Such a move would be catastrophic for the world’s economy.
“Greece’s abandonment of the eurowould most likely create turmoil in global markets,” the New York Times writes, “…It would also increasethe pressure on Italy and Spain, much larger economic powers that arestruggling with debt problems of their own.”
But isn’t the US’ and Europe’s loss our gain? What’s wrong with us re-writing our laws to attract capital by promising banking secrecy to the world’s wealthiest?
Dr Chee Soon Juan (who, incidentally, was awarded the Defender of Democracy Award given by Parliamentarians for Global Action in 2001 together with Mr Papandreou) warned in his book Democratically Speaking that Singapore’s luring of rich tax evaders is causing the financial hollowing out of the very countries whom we depend on for our trade. Below is an excerpt from the book:
…globalisation enabled greater financial mobility where corporationsand wealthy executives could move their funds to tax havens. Thisthey did with a vengeance, causing Western economies to furtherhollow out.
It is estimated that the avoidance of taxes by bigbusinesses cost governments around the world US$3.1 trillionannually…theinternational competition to reduce taxes and deregulate thefinancial system meant that the rich benefited even more, while themiddle-class saw their purchasing power all but wrecked.
These factors,acting in concert, were calamitous for Western economies. Aneconomically weak US and Europe means reduced ability to purchasegoods, much of which is produced in China. And if Chinese factoriesslow down, demand for raw materials like oil, iron, coal, etcproduced by countries like Brazil, Russia and India is reduced,causing these economies to also slowdown.
It is this global economic malaise that is causing our economy to go into a recession. Clearly, our being a tax haven has backfired on Singaporeans. How smart is this?
The beggar-thy-neighbour approach needs to be changed. Dr Chee spells out how we can do this in Chapter 3 of the book.