WASHINGTON ― Eight months after the Panama Papers shed new light on the scale of tax avoidance by the global elite, Ecuador plans to make cracking down on tax havens the centerpiece of its leadership of the G-77 bloc of developing countries at the United Nations.
Ecuador formally assumes leadership of the influential group on Friday, and one of its top priorities will be the creation of an international body to combat the practice of hiding wealth in countries with low taxes and secretive financial laws.
Tax dodging “is one of the great scourges of the 21st century and we need to put an end to it,” Guillaume Long, Ecuador’s minister of foreign affairs and human mobility, told The Huffington Post on Thursday.
In an attempt to put its proverbial money where its mouth is, Ecuador is pairing its international initiative with a domestic referendum on whether it should be illegal for any elected official or civil servant to have financial assets in tax havens. A vote on the measure will coincide with the country’s general elections on Feb. 19.
Like many other developing countries, Ecuador has a strong stake in reining in tax-dodging schemes since they remain a widespread practice among its own elite class. Cash equal to some 30 percent of Ecuador’s economy escapes the country every year for overseas shell companies, secret bank accounts and other tax shelters, Long estimated.
That level of avoidance is a “huge irony,” he said, in light of the cash remittances that flow in from the far-less-privileged segment of Ecuadoreans working abroad. Those transfers totaled more than $2.4 billion in 2015.
“Those are basically people from the poorest sectors of society … and that bolsters the Ecuadorean economy, and you have elites, who haven’t migrated because they haven’t had any necessity, who actually take money physically out of the economy and send it away,” Long said.
Under the left-wing government of President Rafael Correa, poverty and inequality in Ecuador have dropped dramatically. But much of that gain is dependent on the funding of ambitious social programs. Tax avoidance threatens to undermine that progress ― particularly when the economy slows down, as it did in 2015.
Globally, the use of tax havens deprives impoverished nations of $170 billion in tax revenue annually, according to the anti-poverty group Oxfam International.
An “intergovernmental United Nations body that fights for tax justice” would provide countries with a forum to challenge the policies of other countries that function as tax havens, Long suggested. He pointed to the way nations can challenge one another’s trade practices at the World Trade Organization, arguing there is no reason that a similar body should not exist to monitor fiscal policies.
Such an institution could also be empowered to intervene, Long said, “when it sees there is a kind of race to the bottom between two neighboring states ― one lowering its taxes, the other lowering its taxes ... in order to be able to kind of pull money from each other.”
At a July 2015 U.N. conference on financing and development in Addis Ababa, Ethiopia, the G-77 failed in its efforts to win support for such a global tax body.
But Long expressed confidence that the Panama Papers, which revealed the offshore holdings of 140 public officials around the world and resulted in the ouster of Iceland’s prime minister, have changed the politics of the issue.
“This year, because of the scandal, because of the Panama Papers, there is a new historic conjuncture that we can use in order to bring this topic forward,” Long said.
“The time is ripe,” he added.
The prospects for a global tax body may still remain rather dim. The economies of many U.N. member-nations depend on their status as tax havens, and they would likely fight such a proposal vehemently.
Eric LeCompte, executive director of the faith-based anti-poverty organization Jubilee USA and moderator of a Thursday panel on tax havens for which Long delivered the opening remarks, nonetheless lauded Ecuador’s leadership on this issue.
“It is clear to me that the government of Ecuador has looked at how tax and trade issues impact vulnerable communities in their country,” LeCompte said earlier this week.
Short of a global body to combat tax havens, a coordinated push to reduce tax avoidance could involve providing greater resources to developing nations to monitor exports, LeCompte argued. Commercial goods that get past customs officials represent a major source of lost tax revenue, he noted.