Austerity: the tax dodgers’ best friend?

One might think that if a government wanted to impose austerity, its appetite for tax collection would rise. But this may not be the case.  Take a look at this study from the European Federation of Public Services Unions (ESPU,) which came out last October but remains relevant. It’s called The Impact of Austerity on Tax Collection: One Year Later and Still Going Backwards. 

And the key point is in the first summarising paragrah:

“A year ago, EPSU produced a report on the impact of austerity on tax collection between 2007 and 2011. It found that despite strong verbal commitments from governments on tackling tax evasion and avoidance, austerity policies meant that the resources to do so were being reduced.

Sadly, the current report shows that little has changed.”

And here are the key details:

“Overall, 24 out of 30 states (EU plus Iceland and Norway) cut employment in tax authorities between 2008 and 2012, and, in the countries where comparable figures are available, a total of 56,865 jobs have been lost. This is equivalent to 9.6% of the 593,000 that were there at the start of the period.
. . .

Two countries, Greece and the UK, cut employment in tax authorities by more than a fifth in four years, and a third, Latvia, cut it by 19.8%. In total 12 countries experienced a loss of more than 10% of jobs in their tax authorities over just four years.”

See more from this from a UK perspective from Tax Research, here, and from Citizens for Tax Justice in the U.S., here.

Tax officials, of course, effectively pay their own salaries, many times over, due to additional tax collected per staff member. Even a blind austerian would admit that these cuts are particularly suspect.

We at TJN are aware that we probably write too much about the UK generally, at the expense of other countries, so here’s a perspective from Spain, which kind of speaks for itself:

This is from the Center for Economic and Social Rights; Gestha is Spain’s Union of Tax Inspectors.

The report is full of details. Its evidence yields another conclusion that may also seem counter-intuitive, but isn’t:

“Europe provides no evidence of a correlation between a high tax ratio and a high rate of tax fraud and avoidance.”

This is what we’ve been saying for a long time. The reflex anti-tax brigade keep saying that the reason for tax evasion and avoidance is high taxes. But why would a corporation or person paying a tax rate of 25 percent be less enthusiastic about avoidance than one paying 30 percent? And how does one explain that the huge explosion in tax avoidance and evasion and illicit financial flows, worldwide, has come amid a huge fall in tax rates on capital and on corporations. There is evidence, which we’ll publish soon, suggesting that the opposite is the case: tax cuts encourage avoidance, for more than just the reasons outlined above.

Are governments right or wrong to pursue austerity policies? Though our members may have personal opinions we aren’t going to venture a TJN opinion on the matter beyond the issues in this blog, because we’re a revenue-side organisation only, and try to refrain from commenting on spending policies.