Bringing Citizens back in: Is more Tax Justice and Transparency the Answer to Europe’s Problems?

We all have the feeling that the EU is distancing itself more and more from its citizens. Not only the recent spread of the ‘occupy’ movement to EU countries reflects this, but also prior demonstrations in Athens, Madrid, Reykjavik and other cities highlight the disenchantment citizens feel. This is not only due to the actual policies adopted by Europe’s leading politicians that follow the markets rather than public opinion. It is at the same time about a more general and profound feeling of insecurity and disempowerment of citizens. How can citizens regain the feeling of ownership over the democratic process which seems now so far out of sight? In the same vein, how can governments regain the trust of their citizens?

To me both questions are central for reaching a sustainable solution for the European crisis. Rather than only tackling the current symptoms of fiscal deficits, we need a much more comprehensive package of policy measures. But what should such a package include? In my view, we finally have to start talking more about the big elephant in the room. And act accordingly. Two issues will be crucial for avoiding a return of this kind of crisis and to get the citizens on board. First, governments have to show credible commitment to tax justice, both internationally and at home. Second, European governments should not only preach transparency to developing countries, but they should also get their own house in order.

First some words on tax justice. Justice is a big word, and it means that governments should apply the same and democratically decided criteria to all members of society with the same status (citizens as well as companies) while also considering their financial ability to pay taxes. But now we are still in a situation in which losses are socialised whereas gains are privatised.  Even an agreement on the debt restructuring for Greece with the participation of private banks does not change the overall problem. How can we allow that employees cannot escape paying income taxes, but wealthy individuals and firms can do this much easier?

The current discussion on capital flight from Greece is only one example. Broadening the tax base and making taxation more just should be the prime objective of any government. It increases tax revenue and opens up the scope for government action. More importantly, it shows citizens that all members of society have to contribute to public goods and social welfare. Yet, making taxation just has also an increasingly international dimension to it. Estimates say that up to 9 trillion US$ are held in off-shore deposits. Ever increasing international financial flows – both legal and illicit – and the possibility to hide money in tax havens make it difficult to trace money and enforce taxation.

At the beginning of the first crisis in 2008, the public outcry was loud and politicians promised to prohibit certain speculative financial products and to close down such tax havens. But what has happened? Not too much. According to the Financial Secrecy Index published by the Tax Justice Network, eight EU member states have remained among the world’s most secretive jurisdictions in the past two years concerning their tax policy, and their reluctance to share information and comply with international norms. These are Luxembourg, UK (and several island territories), Ireland, Belgium, Austria, Portugal (Madeira), Netherlands and Latvia. It is interesting to note that most of these countries are from the EU’s ‘north’. If governments allow these secretive practices to continue, citizens will hardly get the feeling that justice prevails.

Finally some words on transparency and government. I believe transparency has two inter-related aims: to inform citizens in a simple way on the spending of taxpayer’s money, and to provide a monitoring mechanism that helps curtail corruption. Concerning both aspects, there is much we still have to do in EU member states. In the news, we regularly hear about corrupt practices in Pakistan, Nigeria and other distant developing countries. But we do not have to travel so far. The European Commission believes that corruption costs the EU economy 120 billion EUR annually. So we are not only talking about Greek fakelaki, we are talking about a much more systemic problem that is associated with the fiscal deficits we are dealing with right now.

That is why the EU will install a monitoring mechanism for assessing the anti-corruption efforts of member states. This is a big step in the right direction. But more importantly, governments should themselves embrace more innovative transparency regulations. All budgets (at national, regional, and local level) should be published online in a visually straightforward manner that highlights how the budget breaks down in detail and how expenditure trends develop over time. Citizens could then much easier inform themselves on the way their money is spent, and check on public authorities if irregularities appear.

In addition, the top 30 or so public procurement projects (in terms of total costs) and winning companies for each city, region and at national level should be published in an easily accessible format online. There are many more opportunities that e-government and the growing open data movement could bring and citizens would become much better equipped to understand what their public authorities are doing. Exciting initiatives like the Open Government Data Camp that took place this year in Warsaw and local websites like Berlin Open Data bear testimony to the great potential of better transparency measures.

Eventually, trust will only increase if European governments stick to their tasks. In my view, the only way to get citizens back in is to credibly show that tax justice and transparency matter. After all, both are essential elements of democracy.

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