In the time of economic recession triggered by financial crisis, governments put forward a “no-alternative” solution. This involves austerity measures which include sticking rigidly to financial targets, no-deficit budgets, and cuts in public spending, including education.
These measures are wrong on moral grounds – current public debt levels skyrocketed precisely because governments were forced to bail out irresponsible private banks, with low-income households suffering the most.
These measures also very dangerous economically. Shrinking public budgets will mean less money for basic infrastructure, law enforcement, safety and protection of legal rights, accessible social welfare, health services and education – all aspects of democratic societies that are also fundamental for economic growth.
Governments may present austerity policies as a responsible “spend-what-you-earn” approach instead of the irresponsible borrowing-to-grow approach that caused the economic crisis. But, these austerity policies may lead to further hardship and a dismantling of the welfare state model.
What we need now is a sustainable growth strategy. This should be based on giving priority to job creation and investments in public infrastructure including education, funded through reasonable and fair taxation.
A first step in initiating this new approach would be an agreement among governments to fully apply the OECD guidelines on corporate taxation and the revised Multi-National Corporations' guidelines. They should also apply the OECD guidelines on transfer pricing.
While this would be a step in the right direction, there is still a gap between the needs and actions of national governments and global corporations functioning in a global economy. It is not surprising that global economic players will continue to apply their own rules and procedures to their own benefit.
Closing loopholes will require changing mentalities – and political will. It means changing the widespread acceptance by corporations – large and small – that tax avoidance is legitimate behaviour. To close these loopholes is to take a step towards a new approach, where most people have an opportunity to succeed. Isn’t that what democracies and socially responsible market economies are all about?