Opponents of a central bank should take advantage of the post-Brexit
vote revival of secessionist sentiments to promote a secession from
central banking, or “Fed-exit.” Ending the Federal Reserve's monopoly on
money is the key to restoring and maintaining our liberty and
prosperity.
By manipulating the money supply to fix interest
rates, the Federal Reserve engages in price fixing. After all, interest
rates are nothing more than the price of money. Like all prices, they
communicate information about economic conditions to market
actors. Federal Reserve attempts to override the market rate of interest
with a Fed-favored rate distort the price signals sent to businesses,
investors, and consumers. The result of this distortion is a Fed-created
boom, followed by a Fed-created bust.
The Fed’s action affects
the entire economy and impacts the lives of all Americans, as well as
of people around the world. Therefore, it is no exaggeration to say that
the attempt to fix interest rates is the most harmful example of price
fixing.
Many who normally oppose government intervention in the
marketplace claim that central banking could work if only the Fed
adhered to a monetary rule. Supporters of a “rules-based” monetary
policy claim that a rules-based approach will bring stability and
predictability to monetary policy, and thus put the economy on a path to
permanent prosperity. But under a rules-based monetary policy, the
Federal Reserve retains the power to manipulate interest rates. So under
a rules-based approach, investors and entrepreneurs would still receive
distorted price signals, which would still result in a boom-bust cycle.
No rule can fix the flaws inherent in our system of monetary central
planning.
In recent years, many progressives have joined
libertarians and conservatives in criticizing the Federal Reserve.
Progressive Fed critics often focus on the ways the Fed’s policies
benefit big banks, Wall Street, and other special interests, and how the
policies harm average Americans. Unfortunately, but not surprisingly,
many progressives do not want a free market in money. Instead they want a
more “democratic” Fed. Thus, progressives favor, for example, requiring
that more members of the Fed’s board be confirmed by the US Senate.
They also favor putting representatives of “public interest” groups on
the Fed’s board.
The Fed’s progressive critics are correct that
big banks together with powerful financial institutions have too much
influence on monetary policy. While implementing progressive reforms may
reduce Wall Street’s influence on monetary policy, it will likely also
strengthen the influence of the deep state — that network of crony
capitalists, lobbyists, congressional staffers, and others who work
behind the scenes to control our economic and foreign policies.
Many progressives believe that middle- and working-class Americans
would benefit from a more “stimulative” (meaning inflationary) monetary
policy. Saying that inflation would help the average American turns
reality on its head. Middle- and working-class Americans are the main
victims of the Fed’s inflation tax. Average Americans also suffer the
most when the bubble created by the Fed’s inflationary “stimulus”
inevitably bursts. The true beneficiaries of inflation are crony
capitalists and big-spending politicians.
Instead of fruitless
efforts aimed at “reform” of the Fed, those concerned with restoring a
true free market, reducing economic inequality, and promoting peace and
prosperity for all should work for a “Fed-exit.” The first step, of
course, is to pass Audit the Fed.
Once Congress and the people
learn the full truth about the Fed, they can begin to consider the best
ways to Fed-exit. There are a number of steps that can and should be
taken toward that goal that I will outline in a future column.
Federal Reserve: the
$1.4 trillion seigniorage debt to the US Treasury
and why do we need
to audit the accounting of money creation
by Marco Saba,
IASSEM, July 17, 2016
"In a
departure from Swiss GAAP FER, no cash flow statement has been
prepared."
- Swiss National
Bank, page 158 of the 2015 Report
" Taking account of the ECB’s role as a central bank, the
Executive Board considers that the publication of a cash-flow
statement would not provide the readers of the financial statements
with any additional relevant information. "
- European Central Bank Annual accounts 2015, page A27
The American public
is being asked to pay more and more taxes to the IRS, with
tremendously stiff penalties if they fail to comply. In fact, to
encourage people to rat on those who do not pay their taxes, the IRS
offers rewards to those who report this sort of tax fraud.
HOWEVER, the biggest
tax fraud of all is something that very few people are aware of. In
this article I want to make this tax fraud very explicit.
The biggest
liability that is recorded in the balance sheet of the Federal
Reserve is: Currency in circulation, As of July 13, 2016, it is equal
to $ 1.4 trillion .
In 2007 the US
scholar Willem Buiter - currently Global Chief Economist at CITI
bank in New York - wrote in a paper titled Seigniorage:
"The
solvency constraint of the Central Bank only requires that the
present discounted value of its net non-monetary liabilities be
non-positive in the long run. Its monetary liabilities are
liabilities only in name, as they are irredeemable: the holder of
base money cannot insist at any time on the redemption of a given
amount of base money into anything else other than the same amount of
itself (base money)."
- (pag. 20, Willem H.
Buiter (2007). Seigniorage. Economics: The Open-Access,
Open-Assessment E-Journal, 1 (2007-10): 1—49.
The liability nature
of the currency in circulation is not to the holder of the currency -
i.e. the public - but to the US Department of Treasury as seigniorage
due for the use of the sovereign power of money creation.
Seigniorage is the
sovereign right of the government to the profits coming from the
issuance of the nation's fiat money – i.e. the difference from its
face value and the cost of production. Fiat money in this case is the
US dollar. It is a liability for the bank but an asset of the US
Treasury. It must be recorded by the Treasury's books as "seigniorage
on currency in circulation". BUT CURRENTLY IT IS NOT.
The Treasury DON'T
account for an asset equivalent to the FED liability of 1.4 trillion,
hence in a certain sense this liability is "fake" because
it is unresolved on the side of the Treasury books (the FED don't pay
to the Treasury the 1.4 trillion). Until the US Treasury discover
this credit against the Federal Reserve he is at a loss of 1.4
trillion on his budget.
But wait, here we
are speaking just about BANKNOTES - what the FED calls currency in circulation. What about the trillions the FED
issued in electronic currency ? What about the trillions the US banks
issued when they made loans and bought assets ?
There's a big black
hole in the US Treasury because they misunderstand the management of
the sovereign right of segniorage. And if they leave this sovereign
right to the banks, then you will end up having banks as sovereign in
town ! And that's exactly what's happening in the land of the
free...bankers.
THE OPPORTUNITY
AMERICANS HAVE to get out under the unfair tax burden that government
have illegally place on them is to ask loud and wide for an external
audit of the process of money creation and accounting by the banks,
both the central and the commercial ones.
Two open-eyes
documents on the issue of money creation in commercial banks are here
for further study:
- Torfason, A. -
Cash flow accounting in banks – a study of practice, Göteborgs
University, 2014
Zero Hedge today reports the latest findings by Citigroup market
analyst Matt King, who has determined that stock markets keep going up
because selling in emerging markets has been more than offset by "a
surge in net global central bank asset purchases to their highest since
2013."
Soon, perhaps, central banks will have purchased nearly everything
to maintain asset prices and prevent markets from functioning, thereby
enveloping the world in "financial repression." Or, as a high school
graduate remarked at GATA's Washington conference in 2008, "There are no
markets anymore, just interventions": http://www.gata.org/node/6241
So what are the "technical analysts" among the financial letter
writers really analyzing? Not markets but their own gullibility or that
of their subscribers.
Zero Hedge's report on King's findings is headlined "The 'Mystery' of
Who Is Pushing Stocks to All-Time Highs Has Been Solved" and it's
posted here: http://www.zerohedge.com/news/2016-07-12/mystery-who-pushing-stocks-all-time-highs-has-been-solved
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc. CPowell@GATA.org
A top official from the US Federal Reserve has said
"helicopter money" could be considered to stimulate America's economy if
conventional monetary policy fails.
Dr Loretta Mester, president
of the Federal Reserve Bank of Cleveland and a member of the
rate-setting Federal Open Market Committee (FOMC), signalled direct
payments to households and businesses to stoke spending was an option if
interest rate cuts and quantitative easing fail.
"We're always assessing tools that we could use," Dr Mester told the ABC's AM program.
"In the US we've done quantitative easing and I think that's proven to be useful.
So
it's my view that [helicopter money] would be sort of the next step if
we ever found ourselves in a situation where we wanted to be more
accommodative.
Dr Mester's qualified support for the
use of "helicopter money" - when stimulus is directly pumped into the
real economy, not through the banking system - comes amid expectations
that the Bank of Japan is poised to unleash a major fiscal stimulus
package of at least 10 trillion yen ($130 billion) to kickstart its
flat-lining economy.
Brexit a factor in steady US interest rates
The
comments come as major central banks - including the US Federal
Reserve, the European Central Bank and the Bank of Japan - consider
unconventional policy tools in a world of slowing growth, low inflation
and record low interest rates.
Dr Mester said that concerns about
the Brexit vote were a consideration in June when the Federal Reserve
left rates at between 0.25 and 0.5 per cent.
While the immediate
impact of Brexit rattled financial markets, Dr Mester said the Fed would
be looking to medium and long term fallout.
"Between now and our
next meeting and future meetings we are all going to be assessing what
the impact of that decision will mean in terms of economic conditions
and how they effect the medium term outlook for the US economy," she
explained.
Low rates for too long will raise 'financial stability risks'
While
Britain's shock decision to leave the European Union contributed to the
Fed's decision to leave interest rates on hold last month, Dr Mester
believes there are risks in keeping US interest rates too low for too
long.
"For the US, if we overstay our welcome at zero then of
course there would be financial stability risks," Dr Mester
acknowledged.
"I don't think we're behind the curve in the US on
interest rates, but it's something we have to assess going forward and
where the risk balance is."
With the next FOMC rate setting
meeting scheduled for July 28, Dr Mester declined to be drawn on whether
there would be another US rate rise this year.
However, she
signalled her support for moving rates higher and that rising employment
and inflation meant "a gradual increasing pace in interest rates is
appropriate."
"I've been one of the more positive members in terms
of the US economy. I do think we've made significant progress on the
employment part of our mandate and the recent inflation data has been
encouraging," Dr Mester said.
I am still thinking that a gradual increase in interest rates over time is what's necessary.
"But
of course the timing of the next and the ultimate slope of that gradual
pace will depend on how the risks around the outlook evolve."
Dr
Mester is visiting Australia on a speaking tour and spoke yesterday at a
financial stability conference hosted by the University of Sydney
Business School. Follow Peter Ryan on Twitter @peter_f_ryan and on his Main Street blog.
The June 5 Swiss ballot proposal to introduce a guaranteed basic
income—an unconditional allowance for everyone in that neutral Alpine
nation—was defeated largely on the basis of the Swiss government’s claim
that the idea would “cost too much.” Reuters added: “Swiss voters rejected by a wide margin . . .
a proposal to introduce a guaranteed basic income for everyone living
in the wealthy country after an uneasy debate about the future of work at a time of increasing automation. (Emphasis added).”
Yet, the plutocratic Financial Times acknowledged, “The
Swiss may have just voted to reject a proposal for a guaranteed minimum
income . . . but that hardly means the idea is dead. Pilot projects and
feasibility studies are in the works across the developed world, from
the Netherlands [and Finland] to California. In Canada, the federal
Liberals, along with governments in Ontario, Quebec and Alberta have
expressed interest in the concept.”
However, the nearly universal misunderstanding of money is a major
obstacle. For too long we’ve allowed a small coterie of bankers and
“court economists” to hold the secrets and “tutor” us. So, it’s time for
total openness.
First, regarding the claim that the Swiss proposal would’ve been too
costly, what’s entirely omitted from the discussion is that the proposal
(and similar proposals elsewhere) appear to call for re-distribution of existing money—taking money from certain sectors through taxation and re-allocating it to the people at-large.
The implication is that the money supply is basically static and that
re-distributing limited funds would require tough budget
decisions—sparking tax hikes and associated spending increases in
several areas; hence the claim “costs too much.”
But a successful basic-income plan can and must be based on the
creation of new money, or “distributism,” not on reshuffling existing
money, which is “re-distributism.” That’s the “state secret” that no one
wants to touch.
The issuance of new money needs to happen to overcome the huge “gap”
between today’s paltry purchasing power and the massive mountain of debt
and the towering totality of prices on all available goods and
services. We have full stores and empty wallets. (Ideally and
importantly, governments should reclaim their interest-free
money-creation rights and forbid private central banks from creating
money any longer).
Given such matters, the social credit movement—rarely mentioned in basic-income circles—took root in the early 20th
Century via Scottish engineer-author C.H. Douglas and American
academic-author Gorham Munson, among others. As it became widely evident
that a basic income to supplement employment earnings was (and still
is) needed, social credit proponents were quick to explain their concept
of introducing new money to bridge that gap and provide a universal
allowance with new money.
The amount of money would be equated with production data so
empowered consumers could boost overall demand and liquidate
inventories, which keep factory orders flowing properly. Yet the amount
would not exceed the quantity of available goods, thereby avoiding a
type of price inflation.
Our price increases mainly come from the cost-push process, where
excessive taxes, interest charges and operational costs are pushed on to
the end consumer—meaning that “printing too much money” is not the
inflation-causing bogeyman that so many fright artists claim it is.
This is especially important to point out, given that the world
largely operates on an all-borrowed money supply, wherein new loans are
constantly taken out to pay off old ones, public and private—a vicious
cycle which stacks debts ever higher and depletes purchasing power via
“interest drain.” Price increases and money shortages have become
institutionalized.
As for the automation paradox, social creditors and other visionaries
for years have spoken of the “wage of the machine,” meaning that we
must cancel the rule that income can only come from jobs via human
labor.
Instead, under social credit, a basic income would come in the form
of a regular dividend paid to the population at-large calculated, as
noted above, on production output—regardless of whether that production
required human labor or whether it was largely or completely automated.
That critical distinction means increased leisure time along with better
income, which makes automation a friend, not a foe.
Other social credit components would stabilize and lower prices.
Thus, increased leisure, much more spending power and lower prices are
all within reach, which could foster a renaissance in human thought and
action because the unforgiving yoke of the obligatory “work state” would
be lifted off our backs. See www.Socred.org
Put another way: We were born to do more than just go to work, pay bills and die.
For the
best part of three decades, George Rozvany was inside the multinational
tax avoidance industry. Now, he lifts the lid on the perpetrators, the
world’s most powerful oligopoly.
The “Big
Four” global accounting firms – PwC, Deloitte, KPMG and Ernst &
Young – are the masterminds of multinational tax avoidance, the
architects of tax schemes which cost governments and their taxpayers
more than $US1 trillion a year.
Although presenting as “the guardians of commerce” they are
unregulated and unaccountable; they have infiltrated governments at
every level and should be broken up.
This is the view of George Rozvany, Australia’s most published expert
on transfer pricing, which is one of the principal ways large
corporations pursue cross-border tax avoidance. Rozvany stepped down
last year as head of tax in Australia for the world’s biggest insurance
company, Allianz. Formerly, he was an insider at Ernst & Young, PwC
and Arthur Andersen.
“The Big Four have, under a Rasputin-like cloak of illusion strayed
from their original and critical role of verifying the accuracy of
financial accounts for all stakeholders, to be “accountants of fortune”
merely representing the accounting position for multinationals and
developing aggressive international tax avoidance practices,” he told
michaelwest.com.au.
Rozvany is writing a series of books on corporate tax ethics. “This
is not a victimless crime,” he says. “While Western governments have
been cutting back their aid to the most underprivileged in society, from
the homeless to orphaned children in Africa, multinational companies
have been diverting ever larger profits into tax havens”.
“The global community must also recognise the links between
aggressive taxation behaviour, money laundering, corruption, organised
crime and terrorism, of which the Brussels bombings and 9/11 are
chilling reminders. This, unquestionably, is the financial sewer of
humanity where the purpose for such money, no matter how malevolent, is
simply hidden until used”, Rozvany says.
At the heart of the issue is a conflict of interest. While the Big
Four advise governments on tax reform, they make lavish fees advising
their multinational clients how to avoid paying tax.
“They are both architect and engineer,” says Rozvany. “They sell the
(tax avoidance) schemes to the multinationals; and in the case of the
LuxLeaks scandal last year, they arranged the deals in secret with
government, to the detriment of all other sovereign nations and their
taxpayers”.
In the PanamaPapers scandal earlier this year, Panama City law firm
Mossack Fonseca was singled out as the major culprit behind a global tax
avoidance scam, says Rozvany, but who signs the financial statements
for Mossack’s clients? Who is guarding the guards? “And by the way, if
one enters a Mossack Fonseca office, one knows that one is entering an
aggressive law firm not one pretending to be something else”.
“From a regulatory viewpoint, it makes perfect sense to split the
accounting and tax functions of each of the Big Four to improve
financial integrity and to split each of these firms again into two
firms to create competition. International commerce will then have eight
international audit firms and eight international tax firms from which
to choose.”
“They have become too big, too big to fail, so they must be broken up”
The sheer size and power of the major accounting firms presents a
unique dilemma for regulators. Just four entities, housed in opaque
partnership structures with joint insurance arrangements, audit 98 per
cent of corporations with turnover of $US1 billion or more.
“Their signage adorns the skyline in every major city in the world.
They have meticulously manicured their public image. They are
spectacularly profitable but beyond the law. They are trusted but not
trustworthy. They have become too big, too big to fail, so they must be
broken up. Break up is hardly radical. It has been done in many
industries including banking, oil and communications”.
This year, the combined income of the Big Four will surpass $US130
billion. They employ more than 800,000 staff worldwide. What a telling
metric it is though that KPMG has a Luxembourg office designed for 1,600
staff in a country of just 550,000 people.
“This is the equivalent of a US office with a staff of more than one million,” says George Rozvany.
In support of his thesis of this untenable rise in private power, he
points to the string of global tax frauds and scandals which have
engulfed the audit firms; from the $US11 billion KPMG tax shelter
scandal and the LuxLeaks debacle (which is likely to drag in all four
firms) to the more recent PanamaPapers imbroglio.
All four major audit firms were approached for comment for this
story. All four declined the opportunity to discuss the Rozvany claims
in person. Detailed questions were also put by email but these too were
declined. PROBLEM IDENTIFIED BUT PERPETRATORS STILL AT LARGE
Over the past four years, rising community awareness has made
multinational tax avoidance a big political issue. In Australia, press
revelations about the tax affairs of Google, Apple, eBay, Uber, News
Corp, Chevron, Glencore and the pharmaceutical giants, among many
others, led to the establishment of the Senate Inquiry into Corporate
Tax Avoidance.
The upshot has been increased scrutiny of the tax affairs of
multinationals, targeted investigations into some of the major culprits
and finally reform. In Australia, that reform came in the guise of last
year’s amendments to the Tax Act requiring better disclosure by both
wealthy private companies and multinationals.
Yet still the spotlight has barely fallen on the main facilitators.
Although, on two separate occasions, two representatives from each of
the Big Four firms appeared before the Senate Inquiry to explain their
involvement in aggressive tax planning, and although their performance
under examination was unconvincing, coverage in mainstream media was
scant.
They claimed to be in support of transparency, as this was important
to building public trust in the accounting profession. When asked
however about the accounting practices of their multinational clients
during the November 2015 hearings in Sydney, the Big Four
representatives were far from transparent.
Asked why at least twenty of their top multinational clients had
switched from general purpose accounts to special purpose accounts,
resulting in fewer financial disclosures and lower transparency, they
could not answer. They were tax partners, they said, not audit partners.
The multinationals who had switched to the less transparent (special
purpose) regime, included Bupa Australia (KPMG), News Australia (EY),
JBS Holdco Australia (KPMG), Serco Australia (Deloitte) and Johnson
& Johnson (PWC).
As Inquiry observer and University of NSW accounting expert Jeffrey Knapp described it, the assurances of the Big Four on accountability and transparency are not matched by their actions.
“Whereas general purpose accounts comply with disclosure requirements
across 40 plus accounting standards, special purpose accounts follow as
few as five standards. Special purpose accounts also allow
multinationals to avoid audited disclosures of transactions and balances
with related parties in foreign jurisdictions including tax havens,”
says Knapp.
When asked by this reporter before the Inquiry why their clients were
switching en masse to a regime of lower transparency, the audit firms
declined to respond.
“The archaic partnership structure is the issue … transparency and accountability”
The Big Four all have their antecedents in mid-19th century England
and grew by merging and taking over smaller firms. By the 1970s, they
had become the Big Eight. When Arthur Andersen collapsed amid the Enron
scandal in 2002, the Big Five became four.
The individual country partnerships are now similar to a MacDonald’s
franchise where they own the local store but owe certain obligations to
the franchisor.
“In both cases the brand name carries cache. The difference is that
at MacDonald’s the customer gets the same burger every time but, with
the Big Four, the customers may get a Lehman Brothers’ burger, or an
Enron, WorldCom or AIG burger,” says George Rozvany.
That they have not listed on the share market is telling. Rozvany
estimates that, on typical share market earnings valuations, the Big
Four are conservatively worth $US100 billion to $150 billion apiece in a
public float.
Although the allure of such a lucrative payday for the partners in
each firm must be great, the fear of transparency which would come from a
public listing may well be greater. It is the desire for secrecy, he
says, which keeps them as partnerships.
‘Like the Mafia, the Big Four operate with a six-level hierarchy:
Partner, Director, Senior Manager, Manager, Senior Associate and
Associate,” says Rozvany.
“Compare this with major international law firms whose hierarchy in
the provision of advice is three or four levels. And risk is more easily
controlled”.
As is also the case with mafia, loyalty and tribalism also have been
key factors in the growth and preservation of the business. When it
comes to branding however, the accounting firms are without peer.
“They have an incredible track record in managing reputation,” he
says. Much of this comes down to the slew of surveys and expert reports
conducted by their consulting divisions, reports on everything from
government policy and the economy to women in the workforce and cyber
security. They regularly act too as independent monitors in regulatory
matters and their staff flow constantly in and out of government
agencies via secondment programs.
When the Australian Tax Office made thousands redundant in recent
years, many went to the Big Four. The gamekeepers had turned poachers.
Worldwide, the “revolving doors” between the Big Four, Revenue
Authorities, corporate regulators and other government departments
delivers pervasive influence and render it harder for government
agencies to prosecute wrongdoing.
Rozvany is fast to defend the individuals who work in the major
firms, many of whom are former colleagues. It is the system which needs
fixing, he says. The very success of the accounting oligopoly is the
failure of governments. And the partnership structure of the firms is
problematic, he says. There is no viable corporate governance in the
partnership structure, nor any penalty regime, to prevent rogue partners
from engaging in unethical and illegal activities.
“So powerful are the Big Four, they cause the tax laws of sovereign nations to change”
“The archaic partnership structure is the biggest issue. In public
companies there is a direct line of reporting, with a CEO reporting to
the board. Every position in a public company is accountable to
shareholders. There is transparency and accountability, and pain of
dismissal.
This is not the case for the Big Four.
In late 2014 the LuxLeaks scandal hit the news after whistleblower
Antoine Deltour leaked hundreds of PwC private tax rulings. The firm had
secretly sought and won these “binding rulings” from the Grand Duchy of
Luxembourg.
The effect was that hundreds of the firm’s multinational clients had
diverted billions of dollars to a tax haven. Only PwC documents were
leaked though it is thought all four firms are implicated in the
scandal.
As noted by the International Consortium of Investigative Journalists
(ICIJ) who broke the story, in 2012, US corporations with Luxembourg
entities paid tax of only $US1.04 billion on net profits of $US95
billion. The large licks of tax which were due other sovereign nations
had transformed into a small amount of tax for one small nation.
“So commercially powerful are the Big Four,” says Rozvany, “That they
cause the tax laws of sovereign nations to change with the promise of
additional revenue”.
What is the difference between Mossack Fonseca and the Big Four, asks
Rozvany. The former orchestrates tax schemes for wealthy Western
businesspeople and multinationals, as do the latter. The Panamanian law
firm funnels profits through complex structures to tax havens such as
the British Virgin Islands, so do the Big Four.
“They have presided over a string of the world’s biggest and most
costly scandals for which no partner has ever been held criminally
accountable”.
The KPMG tax shelter scandal in 2005 was then the largest tax fraud
in history, translating to $US15 billion – $US18 billion in today’s
dollars. More than $11 billion in falsified tax losses were identified.
Those responsible however avoided a full prosecution as the firm did a
settlement with the Justice Department.
“The US is the only country to have acted against the big audit firms
(prosecution of Arthur Andersen and KPMG). But as a result of punishing
Arthur Andersen, the firm disappeared and the others have become bigger
and stronger.”
While George Rozvany is the first insider to go public in Australia
criticising the power of the Big Four, in Europe, the US and the UK
there has been growing recognition of the need to hold the main
perpetrators to account.
As Nicholas Shaxson, author of “Treasure Islands”, the bestselling
work on tax havens, told us over the weekend, “Like the too-big-to-fail
banks, they pose multiple threats to our societies”.
“The Big Four are too influential, in too many countries, in too many
parts of the economy. They help their clients exploit loopholes in the
law, they milk multiple conflicts of interest, and they lobby
governments relentlessly. The wealth they obtain for themselves and for
their clients is extracted from the rest of us.” A PROBLEM OF IMMENSE SCALE
The scale of corporation tax avoidance is breathtaking. Related party
transactions – that is, companies doing deals between their own
entities (many of which are tax driven) – make up more than half of all
international trade.
The World Trade Organisation estimates global exports of $US50,000
billion in 2013 which indicates international related party transactions
now run in excess of $US30,000 billion, says George Rozvany.
Assuming only five or ten per cent of these transactions are the
subject of aggressive transfer pricing practices (which would appear to
be conservative if LuxLeaks is a guide) the amount of money at play is
in the trillions.
Rack that up against the global foreign development aid budget in
2013 of $US135 billion and the result is “a crushing indictment of
Western governments and those who peddle tax avoidance schemes
globally”.
Rozvany believes the Big Four, by their very success, “have already
sown the seeds of their own destruction” and, such is their power and
pervasive presence, there is no option for governments but a break-up.
The evidence of predatory practices is in. As Essex University
Professor of Accounting, Prem Sikka, put it in an oped in The Guardian,
“They create sham transactions, phoney losses and phantom assets to
enable their clients to dodge taxes”. Yet no accountancy firm has ever
been disciplined by any professional accountancy body. Same deal in
Australia.
As governments have splashed millions to combat predatory schemes,
they have never sought to recover a cent from the scheme promoters;
continuing to hand them highly lucrative taxpayer funded contracts
instead. Tomorrow: The proposal for an ethical tax regime which would
deliver both higher revenues to government and a lower corporate tax
rate.
