The Tax Avoidance Magic Porridge Pot

The Magic Porridge Pot is a children’s story about a porridge pot which is magic. The clue is in the title. What is magic is that the porridge pot keeps refilling, however much you eat.

It's my birthday coming up, and I'm hoping to receive £100. We've been cutting corners a bit recently, so it will be nice to be able to splash out a bit. £100 pounds should do nicely.

My credit card? Yes. Going to clear it using the £100 pounds I'm hoping to get.

I really want to give something to charity too. My £100 will really make a difference somewhere.

What's the problem? Of course I can spend the same £100 three times. I know, because it happens all the time.

A tax windfall is coming. The numbers might be a bit bigger than my £100, and differ depending on who you ask. I'm leaving the debate as to how much additional tax will be raised to another day. However, the birthday present of previously "dodged" tax is a pot of money it seems can be spent over and over again. 

On the domestic front, the windfall is being measured against benefit cuts. Campaigners carry placards staking a claim of the tax windfall as a means to reverse austerity measures. There is a clear expectation that tackling tax avoidance is going to fund state benefits, the NHS, education and more.

Then there is the deficit. The tax windfall is what is needed to rebalance the books and eliminate the deficit in a reasonable timeframe.

Then there is infrastructure. Of course, the road and rail network will be transformed. And we will have endless green energy and free beer. Ok, the last one was my idea.

If it comes, clearly not all of these ways of spending the money can happen. In reality we would see a mixture of all of them, to a degree.

But then we come to the elephant in the room. Foreign aid. Many of the NGOs campaigning for "fair taxes" and "tax justice" would hold out that the real aim is to alleviate poverty in the developing world. 

Very few politicians are calling for cuts to foreign aid. However, most politicians won’t go further than committing to protect the aid budget. There seems to be a real question as to whether the developing world will see as much benefit from the war on tax avoidance as many of those campaigning for it would like to see.

Yes, there may be additional taxes directly collected by developing countries as a result of tax reform. But in many cases the debate about whether a developing country is collecting the taxes it should is not just about tax avoidance. It is about whether they have the tax regime, governance and capacity to collect the taxes already due.

There are estimates of the amount of tax currently being avoided or evaded. Whichever number you choose to believe, it is important to be aware that the developing world may only see a fraction of this. That fraction will be the amount that arises in those developing countries, plus that element of the windfall for developed countries that they decide to give away as aid. As things stand, the aid budget does not look to be at the front of the queue.

So unless the tax windfall can be spent several times over, like my birthday present, or is a magic porridge pot of money, someone is going to be disappointed.