Weekly Blog - 2 October 2023 - Global Tax Agreement
Global tax agreement?
On 20 September at this year’s UN General Assembly, the nations of the world backed moves towards a global tax agreement under UN auspices. In late November countries are expected to vote on a resolution to begin negotiations on a UN tax convention. Such an agreement would shift the responsibility for global tax rules from the OECD, a club of the 38 richest nations in the world, which is widely seen as having failed to significantly tackle the issues of tax transparency and evasion. It would instead shift that responsibility to the UN, the truly global body representing all the nations of the world. The agreement would dramatically increase tax transparency and take major strides towards preventing tax avoidance and tackling tax havens around the world, which it is estimated will otherwise cost nations $5 trillion in lost tax over the next decade.[1] That is money that is desperately needed, especially in the world’s poorest developing countries, to provide essential services like education and healthcare.
Is tax Biblical?
The Bible is incredibly clear that society must care for the vulnerable. God instructs his people, “There will always be poor people in the land. Therefore I command you to be openhanded toward your fellow Israelites who are poor and needy in your land” (Deut 15: 11), for God “defends the cause of the fatherless and the widow, and loves the foreigner residing among you, giving them food and clothing. And you are to love those who are foreigners, for you yourselves were foreigners in Egypt” (Deut 10: 18 – 19). The “widow”, the “fatherless”, and the “foreigner”, were the poor and marginalised in the agrarian society of their times. They could not provide for themselves because they did not own land, and thus we see these clear Biblical commands that society must help support them. The equivalent in our societies today might be the unemployed, those with medical conditions preventing them from working and those too old for full-time work.
But how can this be paid for? Again there is a Biblical model that this should be funded by a pooled contribution from all in society, what we would call tax. For instance we read in Deuteronomy, “At the end of every three years, bring all the tithes of that year’s produce and store it in your towns, so that the Levites (who have no allotment or inheritance of their own) and the foreigners, the fatherless and the widows who live in your towns may come and eat and be satisfied, and so that the LORD your God may bless you in all the work of your hands” (Deut 14: 28 – 29). And as Paul says in his letter to the Romans, “Therefore, it is necessary to submit to the authorities, not only because of possible punishment but also as a matter of conscience. This is also why you pay taxes, for the authorities are God’s servants, who give their full time to governing. Give everyone what you owe them: If you owe taxes, pay taxes” (Roms 13: 5 – 7). Collecting tax in order to meet the needs of the poorest and most marginalised in society, and to pay the costs of government, is a deeply Biblical concept (4 Shifts Report, pg 61 – 64).
The role of taxation and social spending
Arise has long called for a global tax and social spending agreement as part of its 4 Shifts Campaign. The Campaign looks at the four shifts our global economy needs to become green and fair for all, so it still creates the jobs and wealth that lift people out of poverty, but does so without relying on fossil fuels and overconsumption which is wrecking our planet. One of those four essential shifts is for nations to effectively tax their economies to provide social spending and basic services like healthcare and education, to ensure all benefit, not just the richest in society. If we rewind the clock to the nineteenth century, we find that all governments, everywhere, were taking no more than 7 – 8% of national income as tax, and using it to pay for the police, army and foreign affairs. Governments saw their job as maintaining law and order at home, and security and national interests abroad. They saw no role for the state in providing healthcare, education, pensions, unemployment support or incapacity payments for its citizens, and these were entirely left up to private individuals to arrange for themselves. As a result, the small wealthy upper-class and aristocracy at the top of societies were well provided for, whilst the vast majority of ordinary people endured massive poverty, inequality and little or no healthcare, education or social support. More than 90% of the population of the world lived in extreme poverty in 1820.
Then as the industrial revolution led to the emergence of a larger middle-class of tradespeople, lawyers, journalists, students, trade union organisers etc., they began to call for more democratic reforms and freedoms, and for better education, healthcare and social provision. Responding to this pressure, governments throughout Europe, North America, Oceania and Latin America from the late nineteenth century and throughout the first half of the twentieth century, began to take a much larger proportion of national income in tax, anywhere from 30 – 55%, and use it to pay for healthcare, education and a growing amount of social spending. The modern welfare state was born. This intensified even further after the Second World War, and spread to Asia and Africa, as new independent governments emerged from the end of colonialism. As a result, levels of extreme poverty and inequality have reduced dramatically around the world, and there is much wider access to good education, healthcare and social support. Today less than 10% of the population of the world lives in extreme poverty, and virtually all governments around the world see it as a part of their role to ensure all their citizens have access to education, healthcare and social protection.
Far from these higher tax levels undermining national economies, such progressive taxation and public service provision has actually gone hand in hand with stronger economic performance. It has provided a healthy, educated and trained workforce, and public infrastructure, both of which are crucial for a thriving private sector. Indeed, in the post-war decades of the 1940s – 70s the average tax rate for high earners in most developed countries was much higher than it has been in more recent decades since the tax cutting 1980s. Yet the rates of economic growth were significantly higher during this earlier period than they are today. Around the world today, developing countries (through no fault of their own) have much lower tax rates than developed countries, typically only 10 – 15% of Gross Domestic Product (GDP). Developing countries correspondingly spend much less on public healthcare, education and social spending, which hugely contributes to the much higher levels of poverty they experience, whilst the much higher taxed developed nations are both much more successful in reducing poverty and much more economically successful. Indeed, fundamental to reducing poverty around the world is supporting developing countries both to develop their own strong and fair national economies, and to develop effective tax systems to provide basic services like health, education and social protection (4 Shifts Report, pg 35 – 39).
A global tax agreement
In today’s globalised world it is harder and harder for nations to implement effective tax regimes, as money and investment simply flows across borders to lower taxed and regulated nations, resulting in a race to the bottom. Nations are forced to offer ever lower levels of taxation in order to attract investment, thus undermining their ability to collect and use public finance, which has played such a huge role in every country that has successfully developed. That is why the world needs a global tax and social spending agreement, to increase tax transparency and clamp down on tax avoidance, but also to set agreed tax levels, thus preventing a race to the bottom and ensuring every nation benefits . Through our 4 Shifts Campaign Arise is calling for a global agreement where every nation commits to collect tax at an amount equivalent to at least 45% of the national economy (one third from income taxes, one third from wealth taxes and one third from other taxes). At least two thirds of this should be spent on healthcare, education and social protection. National laws should be brought in to implement this global agreement in every nation. All the strongest academic and economic evidence indicates that these are the kinds of levels that are needed for any modern state to provide the basic services necessary to care for all its citizens.
The current conversations about a global tax agreement to increase tax transparency and clamp down on tax avoidance that have begun at the UN are a long way from reaching an agreement of this kind. But they are a crucial first step on the way to this. We should all do all we can to support these negotiations and help them achieve the most ambitious outcome possible. Signing up and getting involved with Arise’s 4 Shifts campaign is one great way to do this.
Find out more
Find out more about why the world needs 4 Shifts to transition to a fair and green global economy in Arise’s 4 Shifts Report. And for the bigger picture of how God is at work in the world, and the role we all have to play in that work, check out the Arise Manifesto. This is Arise’s big picture, researched, Biblical, holistic and practical vision for a better world.
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[1] ‘Consensus’ emerges at UN ahead of historic vote on tax – but major countries notably silent, Tax Justice Network, (21 Sep 2023), https://taxjustice.net/press/consensus-emerges-at-un-ahead-of-historic-vote-on-tax-but-major-countries-notably-silent/?utm_source=newsletter&utm_medium=email&utm_campaign=consensus_emerges_at_un_ahead_of_historic_vote_on_tax_but_major_countries_notably_silent&utm_term=2023-10-03