G20 NEW WORLD ORDER: AN END TO PACIFIC TAX HAVENS?
The recent G20 leaders’ summit in London was an historic event, heralding a new economic world order. What do these new rules of global engagement mean for the Pacific’s own group of nations the ‘P14′?
Prime Minister Gordon Brown declared the old Washington consensus is over. President Obama stressed the need to move beyond the one-size-fits-all approach to economic growth, trade liberalisation and market (de)regulation. The leaders of the world’s biggest economies agreed to a US$1.1 trillion package to counter the challenges facing the world economy. So what do these new rules of global engagement mean for the Pacific’s own group of nations the ‘P14′ group of island member states of the Pacific Islands Forum?
Foremost on most minds is the renewed focus on secretive offshore financial centres. In the lead up to the London meeting a number of ‘tax haven’ countries scrambled to sign up to international information sharing treaties, including the previously unthinkable end to secret Swiss bank accounts. Reports accompanying the G20 announcement include staggering estimates of up to US$11 trillion dollars passing through the global offshore financial services industry. Little wonder governments want to get hold of the estimated US$250 billion in taxable income.
The Pacific is home to six of the world’s 38 financial centres that have committed to the internationally agreed tax standard, but have not yet substantially implemented that is have not signed up to any bilateral tax treaties. This makes up the OECD’s so-called ‘grey’ list not to be confused to the much feared black list that only includes Costa Rica, Malaysia (Labuan) and Philippines. In fact it is worth emphasising the point that the G20 communique does not seek to punish tax havens only non-cooperative jurisdictions – that is those countries on the black list. Blacklisted jurisdictions face the loss of multilateral financial support. Those on the ‘grey’ list will be monitored and could face sanctions for failing to substantially implement the tax standard.
As most countries have already signed up to the international standards on information disclosure we can expect some pressure to now forge ahead with double tax treaties or information exchange agreements. It is likely that the Pacific tax havens will be relatively low on the agenda of most countries except Australia. In order to ‘substantially comply’ with the international tax standard (and join the US, UK and others in the top category) a country would need to sign a minimum of 12 bilateral agreements on sharing tax information.
Mr Nikunj Soni, Executive Director of the Pacific Institute of Public Policy, suggests the news from London does not necessarily spell the end of offshore financial centres or low or zero personal tax rates, but that the Pacific will likely come under further pressure for more exchange of financial information. He says this sector is not new to the spotlight – following the attacks on the World Trade Centre in 2001 it was put on notice to become more transparent and accountable.it is in the industry’s interest to become more open about its activities The Bush administration succumbed to intense industry lobbying and eased up on the tax haven clamp down. But the new global power brokers don’t appear to be as susceptible to industry rhetoric. Mr Soni says it is in the industry’s interest to become more open about its activities.
Global integration requires government and industry leaders to be fully conversant of the rules of engagement and to move strategically. There will be calls for more openness and a commitment to bilateral tax treaties that could effectively erode the client base of the Pacific offshore industry. If the industry is to get Pacific governments to support its cause on the international stage, it will need to demonstrate the contributions to economic growth, which in turn will require a degree of openness and trust.
… the paradigm has shifted and it is up to the P14 leaders to position themselves in the emerging new world order… Governments also need to consider the longer term development goals, and it is important to note that the push for further exchange of tax information was just one bullet point of the G20 communique. Other significant measures aimed at stemming the fallout from the global financial meltdown include.
- $250 billion boost for global trade
- Capital injection of $500 billion plus a further $250 billion overdraft facility for the IMF to enable members facing economic problems can resort to these additional resources, including the Pacific economies.
- $100 billion injection for multilateral bank lending (ADB, World Bank, IMF) to developing countries strengthening financial supervision and regulations
- strengthening global financial institutions
- renewed commitment to achieving the Millennium Development Goals.
The paradigm has shifted and it is up to the P14 leaders to position themselves in the emerging new world order. Mr Soni notes of the paradigm shift we need to be more innovative in managing our economies to ensure continuing economic growth and sustainable development.
If it truly is the end of the one-size-fits-all Washington Consensus, there has never been a better time for Pacific leaders to engage in constructive dialogue on the way forward that benefits the particular needs of the small island states.
