EDUCATION RESOURCES AND TAXATION – A POLITICAL STRATEGY

Back to cutting of funds for public service – that is the order of the day, as many countries try to reduce their deficits going out of the crisis. The pressure is on in Greece right now, a member of the eurozone, followed by Spain, Ireland and Portugal, as well as Eastern European countries, while aid budgets for developing countries are also being slashed.

The other side of the deficit-cutting equation is the endeavor to increase revenues through taxation. An example of the fix many governments are in is the case of the tax inspectors of Greece. The government, under pressure from the European Commission and Central Bank, wants them to step up revenue collection. But at the same time, the tax inspectors’ allowances are to be cut. So they will go on strike and won’t collect taxes! Ironic isn’t it?

In a way, the same scenario is being played out on a much larger scale with funding for education. Political leaders declare that more must be invested in education. Then they cut education funds so as to reduce the deficit, and in so doing, they cut the very investment that they agreed was needed for long-term growth!

UNESCO and the UN have confirmed that we have to find a way to close a funding gap of US$ 16 billion in order to achieve universal primary education by 2015. Billions more are needed in the developing countries to develop secondary and higher education, and to invest in vocational training for skills. Investment is needed too for quality and equity in the emerging and industrialized economies. Yet resources are being cut. How can the conundrum be resolved?

Finding the resources

The resources are actually there, in the global economy. It is a question of distribution, and the key is that dirty word “taxation”. Now when politicians and ideologues say “cut taxes”, we think of yours’ and my taxes, don’t we? Nobody likes to pay more taxes, and we’d all prefer to pay less. Ronald Reagan and Margaret Thatcher played on these normal human reactions rather simply but cleverly, and they helped set in motion three decades of cuts in public sector funding. They succeeded in persuading voters that the word “tax” referred essentially to personal income taxes. (Although, over those same three decades, it became economic orthodoxy to hike up indirect taxes, such as VAT, which impact on all consumers, and disproportionally affect wage and salary earners.)

Then there are corporate taxes. The same orthodoxy said they had to be reduced as much as possible, in order to encourage employment. National enterprises had political clout and were adept at using the employment/investment card to defend their interests. So revenue was tightened all round, and it become the conventional electoral wisdom that cutting public resources was the right thing to do.

But while this debate went on, over those same three decades, the world’s economies became globalized. We have global companies, global supply chains, global financial markets, and the players in these phenomena of the global economy can largely avoid paying taxes at the national level. It is that lack of symmetry between global generation of wealth, and failure to contribute to national public needs, that is very much at the heart of the conundrum.

This is the story that the voters need to hear about. We can have debates about personal or corporate taxation at the national level. But unless we address the fact that global entities largely escape their taxation obligations, we will continue to be stuck in a political dilemma. The resources are there in the global economy. The question is how to get them to communities, where they are needed for investment in education, health and other areas of social need.

Taxing global companies and their transactions

This week about 80 civil society organizations, including ITUC and TUAC, put the case to the IMF for a Financial Transactions Tax (FTT). Such a tax would generate enough resources to fund achievement of the Millennium Development Goals (MDGs) including the US$ 16 billion funding gap for education. Moreover it would help stabilize financial markets. The G20 has already mandated the OECD to tackle the issue of tax havens, although there is still a long way to go to deal with the corporate, as distinct from the personal use of tax havens. But nobody has really got to grips yet with the central question of global tax avoidance by global companies. These companies have ways to minimize their taxation that national companies do not have – through smart accounting across their global empires. Recently, the French public television channel, Antenne 2, ran a documentary revealing how little global companies (including French-based ones) paid in comparison with national companies – especially the small and medium enterprises which provide most employment. The resources for investments in education and other public sector needs are right there – in the accounts of the global companies.

An epic struggle

Make no mistake. An epic struggle is underway. We see that in the US, where a reform-minded President is confronting powerful interests. We saw it in Davos last week, where the chairman of the largest private equity firm in the world warned the Australian government of an investment “chill” following efforts to collect taxes on a windfall deal by one of his rivals.TPG, another private equity firm, made an estimated 400% profit (yes that was 400%) out of a complex takeover and refloating of a major national retailer. The bankers are resisting mightily the G20 leaders attempt to recover taxpayers’ bailout money or to tighten regulation of the financial sector. They actually find a return to the bonus culture to be justified, and they use amazing arguments to avoid paying a fair share of taxes on those bonuses.

In these circumstances, while confronting those abuses, it would also makes sense to go for a political strategy aimed at showing the voters in democracies that global corporations must be required to pay fair and reasonable taxation. We are not putting the focus here on individual taxpayers, nor on national small and medium enterprises – but on global corporations. Voters generally do not know that, through large-scale tax minimization, resources from the global economy are being withheld from nations and communities.They must be informed. Governments must be shown that winning access to these resources is the way forward. Then, and only then, will we see easing of pressures on public sector funding, pressures which affect education investment and future prospects in virtually every country.



Links:

To the IUF's Private Equity Buyout Watch article - Blackmailing the Taxman, from Davos to Sydney http://www.iufdocuments.org/buyoutwatch/2010/02/blackmailing_the_taxman_from_d.html#more



for the communiqué just issued by the ITUC for the G7 finance ministers’ meeting taking place this weekend in Iqaluit, Nunavut, Canada.

http://download.ei-ie.org/Docs/WebDepot/G7%20Finance%20Meeting%20Must%20Resist%20Bankers%20Backlash.pdf