On The McLachlan Interview, And The G-7 Global Corporate Tax
TVNZ’s excuse for screening the Craig McLachlan interview last night was really flimsy. According to a TVNZ spokeswoman: “ It looks at his trial by media in Australia, and the impact this had on his wellbeing over a three and half year period.” This, to TVNZ, justified inviting McLachlan to portray himself throughout as a victim, to attack the media for giving him a hard time, to accuse the women of being manipulated by the media, and to denigrate the entire Me Too movement. If you wanted an example of male celebrity privilege in action, the McLachlan interview was it.
In fact, the court judgement that acquitted McLachlan last December had found McLachlan to be a less than credible witness – and this finding alone should have disqualified him from being given so much sympathetic air time to recycle his chosen role as victim. The court also found that the women had been more credible, and that the incidents had, in all likelihood, occurred very much as described.
However, the court also cited the “high hurdle” it faced on the issue of consent. Under the archaic legal definition of “consent” in place in Australia at the time the incidents had occurred, any belief by the perpetrator that the complainant was consenting – not matter how irrational that belief was – had to be counted as grounds for acquittal. The court cited McLachlan’s “egocentric” personality as an exonerating factor, in that he simply may not have been able to comprehend that his advances would not be reciprocated :
[ Magistrate Belinda Wallington found] that McLachlan did sit on CA's lap and straddle her, and "the proximity of their genitalia in this position makes the conclusion of indecency inevitable". While Magistrate Wallington said CA did not consent to McLachlan's actions, she said it was not clear if he understood this. "I cannot dismiss the reasonable possibility that in his egocentric state of mind, amongst some amount of adulation from sections of the cast and management, in combination with a lack of checks and balances on his lewd behaviour, that he was not aware of CA's lack of consent," she found.
Reportedly, Australia’s law on consent in sexual assault cases has since been changed. The perpetrator’s belief now has to be “reasonable” in the circumstances. If that new test had been in place, it is an open question as to whether McLachlan would have been acquitted. No-one of course, is offering equal high profile airtime to the complainants about the impact on their wellbeing of the legal system’s failure to afford them justice. The Me Too movement emerged only after victims began to speak out about a culture of sexual abuse by powerful egocentrics who had been enabled– often with a nod and a wink – to flourish in the entertainment industry for decades. This interview amounted to an attempt to turn back the clock.
Point being, TVNZ knew all of this, beforehand. It knew that Channel 7 in Australia had been extensively criticised by sexual assault survivors for screening an interview that was so skewed in its sympathies. It chose to do likewise. By giving McLachlan free rein in prime time to denigrate (a) the complainants (again) (b) the media and (c) the Me Too movement, TVNZ put ratings over any sense of social obligation.
Taxing the global dodgers
On the weekend, the G-7 group of wealthy nations agreed to impose “at least” a 15% corporate tax on multinationals on the profits they make within their host countries, rather than simply at the going rate in the countries where they are nominally headquartered. ( In tax havens like the Caymans and Switzerland that’s zero, and in Ireland it is only 12.5%.) Should we be seeing the G-7 move as a game changer, or as virtue signalling? Or as something in between?
Since one of the main conditions is that the tax will be levied only on profit above 10% this, as the Guardian has already pointed out, would exempt Amazon, which – while it somehow managed to make Jeff Bezos very, very rich – also arranges its books to show slim profit margins and extensive re-investment in technology that keeps its profit levels (nominally) at around 6.3%. Other firms will be looking admiringly at Amazon for inspiration on how to achieve similar ends.
There are other reasons for holding the champagne. As Joseph Stiglitz (see below) recently pointed out, the global average corporate income tax rate fell from 49% in 1985, to 24% in 2018. The G-7 move cements in this downward trend. That trend may also help to explain why some countries (e.g. France) have imposed digital taxes targeted at the likes of Google and Facebook, but the US has made it clear that these taxes would have to be scrapped once the 15% global rate is adopted. That may explain why the Biden administration has been driving the 15% corporate global rate so hard.
Until recently, US President Joseph Biden had seemed more intent on taking the US corporate tax rate back up to the 28% it was sitting at in 2017, before Donald Trump slashed it down to 21%. Yet In the face of the opposition by the Republicans and by the right wingers within the Democratic caucus, it seems unlikely that any tax hike ( or any new tax at all), would survive a Senate vote. So Biden’s embrace of a 15% global tax rate has to be seen as part of that backdown, especially given that – as mentioned - it would scrap the digital services taxes being imposed unilaterally by France and India. Biden is also framing the global tax as a way to fund a bipartisan infrastructure package. It still looks like being an uphill battle.
In the Trumpian aftermath of rampant USA! USA! nationalism, Biden will also struggle to get the global tax through a Congress that’s already being incited by Fox News to treat the global corporate tax as the modern equivalent of the Old World’s tea tax of 1776 that sparked the American Revolution. Patriots, resist this foreign tax! And a pox on those traitors in high places, who would seek to impose it on the American people! Etc etc.
Digital taxes vs a global minimum corporate tax?
On this choice, there’s a fascinating article by Terry Baucher at interest.co.nz about Google’s activities within New Zealand, which suggest to him that a digital services tax could be more profitable for New Zealand. The Google accounts are complex - Baucher spends several dense paragraphs detailing them – before concluding : –
India, for example, has a 6% equalisation levy and has recently imposed a further digital services tax, which drew the ire of the United States. Although India's response has pretty much been well, if you want to get access to 1.4 billion customers, this is how it's going to be. India is big enough to be able to tell the tech companies you play by our rules or else, but New Zealand can't.
So, the issue for us is whether government is going to wait on the OECD rules coming in on a global minimum tax….and agreeing a new basis for taxation, or it decides to push forward with a digital services tax. I imagine that seeing Google's latest results may well prompt [Revenue Minister David] Parker to move up the progress of a digital services tax.
Regardless, Parker has since welcomed the 15% global minimum rate proposal as “overdue.” As things stand, it would still be years before our state coffers received any extra dollars from the global corporate minimum tax. Theoretically, and as global agreements tend to do, it would also require NZ multinationals such as Fonterra and Xero to comply with its provisions. Tough. That’s what being a good global citizen involves. If our multinationals have been dodging their fair share of tax, surely they deserve to be caught out.
The symbolic impact
Finally, and in passing, one has to regard the G-7 move as heralding a major shift in attitudes. For the past 40 years, the West has bought the quack nostrum that tax cut handouts to business will enable them to invest virtuously, with economic growth ensuing. Trouble is, and ever since the glory days of Reagan and Thatcher in the 1980s, there has never been any evidence to support the theory. (If it is to be part of the new school curriculum, Rogernomics should feature only as a cautionary tale.)
True to form, the Trump tax cuts of 2017 didn’t deliver re-investment and growth, either. Instead, the tax cuts bankrolled massive share buybacks that further enriched wealthy shareholders - thereby increasing income inequality, while denying government the revenue to repair the country’s infrastructure and/or to improve public services.
Not before time, that climate is changing. The few political parties and organisations advocating for tax cuts and pouncing on examples of government waste – always merely a cover for discrediting the role of government per se – seem like voices from a bygone era. Last week, the economist Joseph Stiglitz published an article in Foreign Affairs magazine under the fetching title of “Why Capitalism’s Salvation Depends on Taxation.” In it, Stiglitz and his co-authors argued that for millennia, the free market has always depended on the state for its very existence. For example:
Without regulations and government support, the nineteenth-century English cloth-makers and Portuguese winemakers whom the economist David Ricardo made famous in his theory of comparative advantage would have never attained the scale necessary to drive international trade. Most economists rightly emphasize the role of the state in providing public goods and correcting market failures, but they often neglect the history of how markets came into being in the first place. The invisible hand of the market depended on the heavier hand of the state.
Obvious, really. So obvious that the free marketeers, cushioned by privilege, could afford to forget it:
The state requires something simple to perform its multiple roles: revenue. It takes money to build roads and ports, to provide education for the young and health care for the sick, to finance the basic research that is the wellspring of all progress, and to staff the bureaucracies that keep societies and economies in motion. No successful market can survive without the underpinnings of a strong, functioning state.
Besides spelling out those forgotten truths, the Stiglitz article is particularly good at quantifying the socially suicidal changes wrought by the market fundamentalists. In the US for example, total tax revenues shrank from 32% of GDP in 1999 to 28% today, with visible results: “Crumbling infrastructure, a slowing pace of innovation, a diminishing rate of growth, booming inequality, shorter life expectancy, and a sense of despair among large parts of the population.”
These consequences, Stiglitz says, add up to something larger than poverty and social disintegration. The populist backlash from those left behind has posed a threat, in his view “to the sustainability of democracy, and of the global market economy.” To make things worse, the tendency to paint taxes as being a hindrance to growth has gone hand in hand with the rise of international tax competition and the growth of a global tax-avoidance industry, both of which have put additional downward pressure on revenues.
Today, multinationals shift close to 40 percent of their profits to low-tax countries around the world. Over the last 20 years, according to the economist Brad Setser, U.S. firms have reported growth in profits only in a small number of low-tax jurisdictions; their reported profits in most of the world’s major markets have not gone up significantly—a measure of how cleverly these firms shift capital to avoid taxes. Apple, for example, has demonstrated as much inventiveness in tax avoidance as it has in its technical engineering; in Ireland, the technology giant has paid a minuscule annual tax rate as low as 0.005 percent in some years.
And it gets personal, too. “It is not just corporations that engage in tax avoidance; among the superrich, dodging taxes is a competitive sport. An estimated eight percent of the world’s household financial wealth is hidden in tax havens.” One could go on, with the grisly details. But suffice to say, this provides the backdrop for the move by the G-7 to (belatedly) begin to acknowledge that there is a problem. Almost by accident, the pandemic has helped by underlining the positive role that government plays within society, and in keeping the market economy afloat. Before blindly signing onto the G-7 proposal, New Zealand now needs to do the sums on the net benefits that this G-7 tax would deliver to this country (and when) as opposed to what we would get from imposing our own dedicated tax on digital services.
At this point, none of us know what the better option would be, in terms of a timely delivery of net benefits. Yet significantly, it is a choice between which tax to adopt. Not before time, the “ no new taxes!” approach is being consigned to the dustbin of history. Stiglitz reaches this conclusion:
By eating up the state, capitalism eats itself. For centuries, markets have relied on strong states to guarantee security, standardize measures and currencies, build and maintain infrastructure, and prosecute bad actors who attain their wealth by exploiting others in one way or another. States lay the basis for the healthy, educated populations that can participate in and contribute to the successful flourishing of markets. Allowing states to collect their fair share of revenue in the form of taxes will not usher in a dystopian era of oppressive government.
Instead, strengthening the state will return capitalism to a better path, toward a future in which markets function in the interests of the societies that produce them, and in which the benefits of economic activity will not be restricted to a vanishingly small elite.
Songs about taxes
Hard to believe, but there was once a time when using tax revenue to pay a pension seemed like an outlandish idea. Back in the 1930s, the Sons of the Pioneers released this satirical take on the very notion of the government regularly handing out money to reduce poverty among old people: