Australia markets close in 6 minutes

    -1.70 (-0.02%)
  • ASX 200

    -1.20 (-0.02%)

    -0.0006 (-0.09%)
  • OIL

    -0.43 (-0.48%)
  • GOLD

    -2.20 (-0.12%)

    -1,111.98 (-3.26%)
  • CMC Crypto 200

    -15.72 (-2.82%)

    +0.0006 (+0.08%)

    +0.0037 (+0.33%)
  • NZX 50

    -129.53 (-1.10%)

    +35.13 (+0.26%)
  • FTSE

    +26.10 (+0.35%)
  • Dow Jones

    +18.72 (+0.06%)
  • DAX

    +70.70 (+0.52%)
  • Hang Seng

    +46.72 (+0.24%)
  • NIKKEI 225

    -25.38 (-0.09%)

War on billionaires: Australia among global tax havens fuelling inequality

·5-min read
Australia is among the global tax havens fuelling inequality, a report has found. Source: Getty
Australia is among the global tax havens fuelling inequality, a report has found. Source: Getty

Australia has ranked 48th in the latest list of global tax havens, with the nation “undoubtedly” hosting significant quantities of illicit funds.

But while the country ranks relatively low on the Tax Justice Network’s 2020 Financial Secrecy Index, the United States has overtaken Switzerland as a global tax haven, and the Cayman Islands is still the worst offender.

Over the course of 2019, the Cayman Islands increased the volume of financial services it provides to non-residents by 21 per cent, and the US increased its supply of financial secrecy to the world by 15 per cent.

Panama, the source of 11.5 million leaked documents in 2015 that exposed a huge system of tax evasion among the world’s elite, sat 15th on the index.

Tax Justice Network chief executive Alex Cobham said while polls show people in the US and the UK favour greater transparency when it comes to tax, governments have taken their feet off the pedal.

“It is deplorable, however, that in the face of this progress, an Anglo-American axis of secrecy has actively chosen to double down on the practices that exacerbate corruption, tax abuse and global inequalities,” Cobham said.

US companies rorting the tax system

While the US has surged past Switzerland as a tax haven for non-residents, American companies also take advantage of the country’s lenient tax policies introduced by the Trump administration back in 2018.

The Tax Cuts and Jobs Act took lowered the corporate tax rate from 35 per cent to 21 per cent – but companies like Amazon have still gotten away with paying next to nothing in federal income taxes.

In fact, in 2018, Amazon literally paid $0 in federal income taxes.

Last year, the company paid US$162 million in income tax - which is an effective tax rate of just 1.2 per cent on its US$13 billion profits.

And Amazon isn’t alone.

According to the Institute on Taxation and Economic Policy, sixty Fortune 500 companies did not pay federal income tax in 2018 – three times more than the number of companies that did not pay corporate taxes between 2008 and 2015.

In Australia, Google and Amazon paid around 3 per cent of their revenue in corporate tax, compared to the nation’s 30 per cent corporate tax rate.

Netflix is not dissimilar, with the company paying just over $341,000 in tax in Australia despite raking in between $600 million and $1 billion from local subscribers.

The company’s corporate structure reportedly allows a Netherlands-based subsidiary to bill its customers, which incurs a Dutch tax rate that’s much lower than Australia’s.

How tax avoidance fuels inequality

Wealth inequality is rife across the globe: the richest 1 per cent (those with more than $1 million in assets) own 45 per cent of the world’s wealth, and adults with less than $10,000 in wealth make up 64 per cent of the world’s population.

The globe is home to 2,208 billionaires, and the world’s 10 richest billionaires own $735 billion in combined wealth - a sum greater than the total goods and services most nations produce on an annual basis, according to

And there is a link between tax evasion and inequality, studies have found.

A 2019 study published in the American Economic Review found offshore tax evasion was highly concentrated among the rich - and the wealthier someone was, the more likely they were to hide assets in Switzerland.

When these individuals, and indeed big corporations, stash their wealth in tax havens, they deprive their governments of the resources they need to provide vital public services, Oxfam states.

In turn, governments are forced to cut down on those services, or collect higher taxes from others - and both options lead to a wider wealth gap.

According to Oxfam’s statistics, corporate tax dodging costs poor countries at least $100 billion every year, which is enough money to provide education to 124 million children, and prevent the deaths of almost eight million mothers, babies and children each year.

Is there a solution?

The big winners in tax evasion are big corporations and wealthy people, and Nobel-prize winning economist Joseph Stiglitz has previously advocated for a global minimum tax rate of 20 per cent in a bid to stop the gap widening.

"The first tax reform we need is to get a global agreement to end the tax competition race to the bottom and make sure that there isn't massive tax avoidance,” Stiglitz told The Sydney Morning Herald back in 2017.

"The fiscal paradises are still there. Panama is still there. Money laundering is still going on."

Alternatively, Tax Justice Network’s Cobham suggested responsible policymakers outside of local governments must consider counter measures.

“Creating a fair world that treats all members of society as equals means reprogramming our financial and tax systems to run on transparency, not secrecy, making it impossible for criminals and elites to go uncounted and making sure countries are well-resourced and well-governed to support everyone to lead a meaningful and fulfilling life."

The top 50 of the Financial Secrecy list

  1. Cayman Islands

  2. United States

  3. Switzerland

  4. Hong Kong

  5. Singapore

  6. Luxembourg

  7. Japan

  8. Netherlands

  9. British Virgin Islands

  10. UAW

  11. Guernsey

  12. UK

  13. Taiwan

  14. Germany

  15. Panama

  16. Jersey

  17. Thailand

  18. Malta

  19. Canada

  20. Qatar

  21. South Korea

  22. Bahamas

  23. Algeria

  24. Kenya

  25. China

  26. Lebanon

  27. Cyprus

  28. Kuwait

  29. Ireland

  30. Gibraltar

  31. Macao

  32. Malaysia

  33. Franc

  34. Nigeria

  35. Angola

  36. Austria

  37. Vietnam

  38. Israel

  39. Sri Lanka

  40. Bermuda

  41. Italy

  42. Jordan

  43. Isle of Man

  44. Russia

  45. Saudi Arabia

  46. Egypt

  47. India

  48. Australia

  49. Marshall Islands

  50. Belgium

Make your money work with Yahoo Finance’s daily newsletter. Sign up here and stay on top of the latest money, news and tech news.

Follow Yahoo Finance Australia on Facebook, Twitter, Instagram and LinkedIn.

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting