Feb 14 2011

The inflows don’t make up for the outflows

Posted by: Nick Shaxson in: Thoughts

I’ve got a comment article in Scotland’s Sunday Mail, entitled The tax havens hiding billions from the taxman…and Britain’s one of the biggest

Although they’ve savagely cut back the number of words I submitted – I’m delighted with the edit that they’ve done: it’s now shorter and punchier. The point I think I’d like to pull out from the article – as this is something that confuses a lot of people – is this:

Two things are happening here. First, ordinary taxpayers are being stiffed by our own wealthy individuals and corporations sending their money offshore.

Second, Britain sucks money back in from elsewhere by being a tax haven.

. . . But here’s the problem. The money flowing in doesn’t make up for all that money draining out. Have all these offshore trillions flooding into the City made Scotland, or Britain, a better place to live? Are we better off than the French or the Germans or the Swedes? There’s a lot of wealth, but our economy is horribly imbalanced.

A wealthy City sucks away the best talent from the rest of the country, draining our manufacturing potential, and leaving one of the most unequal societies in the developed world. These offshore trillions flowing in have created too-big-to-fail banks and the spectre of Bob Diamond of Barclays telling us, mid-austerity, that the time for “remorse and apology” from banks must end.

Meanwhile, the bankers threaten our elected representatives: “Don’t tax or regulate us too much or we’ll go to Switzerland.” Far too often, the politicians cave in and give them what they want.

This two-way flow is essential to remember: offshore money flows in, and offshore money flows out – but the inflows don’t counteract the outflows. A similar (though not identical) point was made recently on the blog of the Task Force of Financial Integrity, looking at why traditional models have under-estimated the scale of the problem in the past:

“In traditional models, economists net illicit inflows from illicit outflows, resulting in a lower “net” estimate of capital flight.  This is a skewed picture because illicit outflows, because they are illegal by definition, are not supplementing the domestic economy in the same way an illicit outflow is detracting from it.  For example, if you were an economic advisor in Colombia, would you tell President Juan Manuel Santos that the money flowing into his country as a result of the drug trade is offsetting the negative effect of the money flowing out?   No.  If anything the two numbers should be added.

Something always to bear in mind, when we hear the likes of Toby Young saying all this money flooding in is good for our economies. Oh, and there’s a warning for Scotland, not to heed the words of those who would love to see it turned into a tax haven.

one comment

cynicalHighlander 2th February, 2011 9.47 pm

The last paragraph was that yours.

Does Scotland really want to turn itself into a more unequal society in ever greater thrall to the offshore financiers? Ireland turned itself into an offshore bolt-hole for foreigners – look how that turned out

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