Caribbean countries are being challenged by the issues of correspondence banking and de-risking as well as labels like tax heavens. According to some analysts, experts and policymakers, it could have dire consequences for our small and highly vulnerable economies, if not handled effectively and with a profound sense of political and strategic exigency.
While it is definitely crucial that we pay close attention to all the goings-on in relation to these matters, we must also have a very clear understanding and appreciation for what is happening from the perspective of the advanced economies in the Organisation for Economic Cooperation and Development (OECD). You see, that understanding is what ultimately ought to drive our responses to give them real and impactful meaning.
Put differently, we need to carefully examine developments within the United States, United Kingdom, and the European Union (EU), especially over the past decade, which frame the context of the recent initiatives emanating from these countries, and which threaten the economic viability of the Caribbean as far as correspondence banking, de-risking and the labels as tax heavens are concerned.
But what are these developments? Specifically, OECD countries are challenged by inter alia pressure to: • increase defence spending, political pushback whenever attempts are made by these governments to make substantial cuts in welfare programmes and benefits, • growing wealth and income inequality (fuelled by massive tax breaks for the wealthy from the Reagan and Thatcher administrations in the 1980s onwards, • sluggish economic growth in these countries as the “new normal” linked to Stiglitz, Pinketty and others claim and the notion that the top one per cent of these countries’ populations is receiving ever greater percentages of all the income generated annually in these economies, • globalisation and its effects in terms of heightened international competitiveness and the growth in trade blocs (NAFTA and the EU Expansion, as examples), and • the emergence of chronic fiscal imbalances in these economies.
The first four factors above, taken together, have adversely affected the revenue and, ultimately, the fiscal positions of these countries, leading to chronic budget deficits. Hence the search for ways to not only restrict and defeat tax evasion (which is illegal in all countries), but also tax avoidance (which is perfectly legal in all jurisdictions).
Not surprising, therefore, is the continued battles with Apple and dozens of other transnational corporations over their highly effective tax avoidance strategies.
Of tremendous importance is that none of the governments of these advanced countries has ever claimed that what these companies are doing is illegal or criminal. That is why their typical response is one which suggests that they are eager to “close loopholes” in the law which causes them to lose a considerable amount of revenue.
By extension, then, it is not too difficult to understand why those advanced OECD countries are quick to label as tax heavens countries in the Caribbean and elsewhere that transnational corporations use to invest because they are deemed low-tax jurisdictions.
Going forward, therefore, unless we in the Caribbean understand the real drivers of some of the developments taking place in the advanced countries in relation to correspondence banking and re-risking, as well as the issue of tax heavens, our responses geared towards resolution and mitigation of effects will be misguided.
This is an error we cannot afford as we seek to further grow and develop our economies along sustained and sustainable lines.
Email: bfrancis@uwi.edu.bb
