The awful truth about tax havens

    The crackdown on tax havens is already being hailed as one of the good things to come out of the financial crisis. Rightly so. Now that punitive tax rates have disappeared, there’s no justification for errant rich states, pesky principalities and dodgy developing nations to profit from helping the rich of the world stay that way.

    Looking at the threatened sanctions, it’s easy to see why the tax havens rolled over. The ‘toolbox’ of counter-measures includes cutting off aid to poor countries, withholding taxes on cross-border payments and not allowing tax deductions for business expenses in the bad lands. That’s enough to change tax evasion from a national profit centre to an economic disaster.

    The G20’s success is welcome, but raises two impertinent questions. First, considering how quickly the promises of compliance came once the G20 nations got tough, why did it take so long ? The answer is simple. Politicians weren’t really keen to put substantial pressure on Switzerland, Luxembourg, Andorra, Vanuatu and the like. Tax havens — like offshore havens for gambling, prostitution and other vices — are fun to condemn but pleasant to use. Second, will the G20 nations stick to their resolve ? Post-crisis resolutions could easily prove as durable as the typical New Year variety. The newly beefed up global Financial Stability Board and the OECD’s Financial Action Task Force are supposed to ensure enforcement. They should work fast and hard to establish good habits. Otherwise, politicians and their rich friends will once again discover the need for a safe haven from populist extremists.