Cost of ‘shadow’ economy revealed

Huge cost of tax evasion revealed as man who went undercover for 14 years to expose tax havens visits Australia.

New research published by the Tax Justice Network shows that tax evasion costs 145 countries, representing over 98% of world GDP, more than US$3.1 trillion annually.

Australia’s loss from tax evasion is estimated at $41.4 billion a year, based on a World Bank estimate of the size of the Australian “shadow” economy.

The “shadow” economy is that part of the economy hidden from the view of tax authorities.

The release of the research comes as the co-founder of the Tax Justice Network, John Christensen, visits Australia until December 1 as a guest of the Uniting Church in Australia.

Mr Christensen went undercover in Jersey for 14 years to see the harm tax havens were doing to the global economy, especially for developing countries.

“What I found really shocked me. I had clients engaged in all sorts of unethical and illegal activities, including tax evasion, insider trading and arms trading. Jersey provided laws to hide all these activities from any foreign authorities that might try to investigate what was going on,” said Mr Christensen.

Mr Christensen was then recruited to be the economic adviser to the Government of Jersey for 11 years.

“Tax havens are a cancer at the heart of the global financial system,” said Mr Christensen. “Tackling tax havens is a crucial part of ending the culture of tax evasion. Tax evasion is crippling public finances across the world but governments aren’t doing nearly enough to end this cancer.”

Mr Christensen said, “Tax havens are engaged in economic warfare against the tax regimes of sovereign countries. Italy loses €183 billion to tax evasion a year. Its current debt of €1.9 trillion represents just over ten years tax of tax evasion on this basis.  If only more had been done to tackle rampant tax evasion, Europe would not be facing a crisis today.”

The latest research by the Tax Justice Network found Papua New Guinea loses an estimated $925 million a year in tax evasion, three times the size of its health budget. The Solomon Islands loses an estimated $55 million a year in tax evasion, one and a half times its health budget.

“Tax evasion in our region, facilitated by tax havens, is undermining the impact of Australia’s aid program,” said Dr Mark Zirnsak, local representative of the Tax Justice Network. “As a member of the G20, Australia is well placed to support global measures to end the dodgy activities of tax havens.”

Mr Christensen currently represents civil society on the Task Force on Tax and Development launched by the OECD in January 2010.

He has published many journal and newspaper articles on economic issues, and regularly takes part in radio and television programs and documentary feature films.

Other key findings

• Africa loses the equivalent of 98% of its health budget to tax evasion.
• Over the 145 countries surveyed, an unweighted average of 110% of the annual healthcare budget was lost to tax evasion
• 119 of the 145 countries surveyed are losing the equivalent of over half of their healthcare budget to tax evasion
• In 67 countries, tax evasion losses are larger than the equivalent of their entire health budgets
• More than $1 in every $6 earned in the world is not subject to tax because those earning it have deliberately ensured that their income is hidden from the world’s tax authorities
•  In Greece and Italy, where economic collapse currently looks possible, more than €1 in €4 is hidden in the shadow economy.

See also:

•  Tackle Tax Havens website
•  Campaign video
•  Facebook
• Download full research findings and methodology.