Gordhan: Only 1% at top benefit from globalisation


Pretoria – The wealth of certain countries and economies may be growing, but this is not necessarily job-creating growth, delegates heard at the High Level Conference on illicit Financial Flows, at the University of Pretoria on Thursday.

The advent of globalisation means that economies and citizens should be benefiting from the easy flow of information, knowledge, goods and services and capital. However, this is not the case. Those benefiting from globalisation are only the 1% at the top, said Finance Minister Pravin Gordhan.

“The middle-class is concerned because they are not experiencing the benefits of globalisation.” according to Professor Jeffrey Owens, director of the WU Global Tax Policy Centre (GTPC) at the Institute for Austrian and International Tax Law.

Organisations like the International Monetary Fund (IMF) and the Organisation for Economic Cooperation and Development (OECD) have called to resolve the inequality issue. “It’s not just economic, these inequalities undermine social cohesion,” said Owens. Governments need tax revenue to reduce inequality in income and wealth.

Africa has inadequate financial resources to achieve the United Nations (UN) Sustainable Development Goals for 2030. The cost of providing a social safety net to eradicate poverty is $66bn each year, according to Ghana’s Deputy Minister of Finance, Mona Quartey.

To finance the gap faced by a developing country, improved domestic revenue generation is key for national development, she said. Tax revenue provides governments with the funds needed for development, to relieve poverty, deliver public service, and aid dependents.

Developing countries need to look inwards to generate revenue to pursue development. Weaknesses in revenue administration lead to illicit flows. About $1tr moves illicitly out of developing countries annually, shifting to Western countries, she added. This is money that could be used for health, education and investment.

Tax evasion also places a heavy burden on small businesses, according to Adeyemi Dipeolu, special adviser on Economic Matters to the President of Nigeria. Small businesses carry a disproportionate burden of tax revenues than larger companies. “Large companies benefit from taxes, but don’t pay for taxes.”

Advanced economies must play their part in ensuring that their companies, governments and citizens do not abuse their influence when dealing with smaller countries, said Gordhan “This is critical for the 54 countries on the African continent.”

The conference is part of the Tax and Good Governance project. It will examine how to develop a framework for national and international cooperation to curb tax evasion, money laundering, corruption and other illicit financial flows.

The project will identify links between corruption, money laundering and tax crimes and promote good tax governance. It will highlight the importance of a corrupt-free and transparent tax system for economic development and the role of law enforcement agencies and tax authorities to counter corruption and bribery.

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