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Tax breaks don’t work, says report

24 January 2020


A Marine One helicopter, carrying President Trump, arrives at the World Economic Forum in Davos, Switzerland, on Tuesday

A Marine One helicopter, carrying President Trump, arrives at the World Economic Forum in Davos, Switzerland, on Tuesday

TAX breaks are “largely unnecessary, redundant, inefficient, and ineffective”, a new report released on the eve of the World Economic Forum in Davos concludes.

The civil-society groups behind the report Use and Abuse of Tax Breaks: How tax incentives become harmful, including Christian Aid, write that there is “no conclusive evidence that tax incentives are linked to any positive economic or social impact, especially in the Global South”.

Tax breaks are defined as “policy measures that allow deductions, exclusions, and exemptions that reduce the tax liability of selected economic entities — e.g., enterprises, corporations, firms — with the intention of influencing cross-border investment behaviours, decisions, or activities.”

The report highlights their growing prevalence, especially in the Global South. From 1980 to 2014, the number of sub-Saharan African countries that offered “tax holidays” rose from 40 per cent to 80 per cent. It emphasises the loss of potential government revenues, and concludes that “clear, transparent and credible legal, technical and political processes are essential to prevent their [tax incentives’] abuse”.

The lead author, Alvic Padilla, who is senior economic justice adviser at Christian Aid, said: “Glaring loopholes in the governance of these tools means that tax-incentive regimes are opaque, impossible to evaluate, and of dubious value when set against their cost to countries’ revenues.

“The foregone financial resources could and should have been used to meet countries’ developmental and human-rights goals. The absence of rigorous and transparent processes to assess these measures needs to be addressed urgently.”

Also released to coincide with Davos was a UNICEF report, which warned that half of children in low- and middle-income countries cannot read proficiently by the age of ten.

The report, Addressing the Learning Crisis: An urgent need to better finance education for the poorest children, states that more children than ever are enrolled in school, but resources are being concentrated on the ten per cent of students who are most educated: a cohort dominated by the children of the wealthiest households.

“As long as public-education spending is disproportionately skewed towards children from the richest households, the poorest will have little hope of escaping poverty,” the executive director of UNICEF, Henrietta Fore, said.

Many low-income countries are failing to allocate 20 per cent of domestic resources to education — the benchmark set by the UN. Forty-four per cent of girls and 34 per cent of boys from the poorest families have never attended school, or have dropped out before completing primary education.

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