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No. 3: The breakdown of global consensus

07 December 2017

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The political turbulence in which the western world finds itself will have a profound effect on global tax and trade, meriting the slightly dramatic name of this Global Tax 50 entry.

 The breakdown of global consensus
The breakdown of global consensus is a new entry this year

Brexit ranked third in last year's list while the election of Donald Trump was 10th, and as the effects of the democratic decisions become clearer, their ramifications for trade, tax and economic relations as a whole are coming into focus.

But of course it's not just Trump and it's not just Brexit, though they are two of the more obvious symptoms; western democracy itself has been grinding its teeth and tearing its hair out for several years now. People have been left behind by the pace of globalisation, by neoliberalism and the failure of trickle-down economics, by the self-inflicted 2008 financial crisis. Moreover, the emerging and developing economies that are strengthening themselves on the global platform and establishing a voice for their interests has rattled the western economies that have found comfort, for the last few centuries, in the knowledge that they hold the power. Another tipping point has been the migrant crisis, exacerbated by the west's wars in the Middle East, which gave Islamic extremism renewed impetus and, in turn, handed nationalism back home a foothold.

The result across western nations is fractured and broken democracies, with voters shunning the centre ground and the consensus which they feel has served them poorly for the past 10, 20 or 30 years. With politicians, as well as the public, more divided than ever, tax policy (and government policy in general) has become more extreme.

"Our collective inability to secure inclusive growth and preserve our scarce resources puts multiple global systems at risk simultaneously. Our first response must be to develop new models for cooperation that are not based on narrow interests but on the destiny of humanity as a whole," says Klaus Schwab, founder and executive chairman of the World Economic Forum.

The plans for US tax reform have dominated conversation in the tax world, being the biggest anticipated change since the OECD's BEPS project. While Trump blathered and blustered about "beautiful" tax reform, the rest of the world was intrigued by the detail as his Republican colleagues put forward plans for grand new systems like the destination-based cashflow tax and a border adjustment tax.

These plans would, put simply, have turned the tax world on its head. Tax planning would be transformed. Some say that economies around the world would have had little choice but to follow suit. Perhaps it would even have been a better alternative to today's maligned and pockmarked international tax system.

Instead, it appears there will be a tax reform that unashamedly slashes the taxation burden on the rich, makes little attempt to be revenue neutral, and insidiously includes sections that could force healthcare 'reform', plunging much of the country into further health insecurity.

Brexit, in its own way, has been as polarising as Trump. While 52% of the country – on a 72% turnout – did vote to leave, the government has pursued the most extreme form of Brexit possible, which many leavers would not have voted for had they known more facts at the time of the referendum. Many leave campaigners said that the UK would remain in the European single market and the customs union, for example, but all are now pulling in the direction of a clean break with a heavy landing.

In France, the far-right Front National (proposing a tax on companies hiring foreign workers) was defeated by a newly-formed centrist party led by Emmanuel Macron. Just months later, Macron's approval ratings are the lowest for a newly-elected French leader for 20 years as he tries to push through painful labour and tax changes.

Spain spent most of 2016 without a government after two elections produced stalemates. It now finds itself in the midst of a crisis with one of its most affluent regions trying to break away.

Germany has been locked in coalition talks since its inconclusive September 24 election with no end in sight. In 2013, coalition talks took a record 86 days and produced a grand coalition. This time, the participants said the agreement would not be renewed, but then changed their minds.

Hungary is increasingly autocratic under Viktor Orbán. The populations in Italy and the Netherlands are flirting with the idea of leaving the EU. Austria is close to bringing the far right back into power, with the Freedom Party of Austria wanting a 10% tax on newly-settled refugees' earnings in the country.

Whether you're on the left, the right, in the centre or don't vote at all, it's plain to see that democracy is stumbling, and falling down ahead of it is the global consensus by which our political, economic and taxation systems work. This rocky road has shaken some of the most stable economic societies of the 21st century. Tax and trade will play a crucial roles as these nations look to steady the ships in the coming years.

The Global Tax 50 2017
View the full list and introduction
The top 10 • Ranked in order of influence
1. US Tax Reform Big 6 2. Dawn of the robots
3. The breakdown of global consensus 4. The fifth estate
5. Margrethe Vestager 6. Arun Jaitley
7. Sri Mulyani Indrawati 8. Pascal Saint-Amans and Achim Pross
9. Richard Murphy 10. Cristiano Ronaldo and Lionel Messi
The remaining 40 • In alphabetic order
Tomas Balco Piet Battiau
Monica Bhatia Blockchain
Rasmus Corlin Christensen Seamus Coffey
Jeremy Corbyn Rufino de la Rosa
Fabio De Masi The Estonian presidency of the Council of the European Union
Maria Teresa Fabregas Fernandez The fat tax
Maya Forstater Babatunde Fowler
The GE/PwC outsourcing deal The Gulf Cooperation Council (GCC)
International Consortium of Investigative Journalists (ICIJ) Meg Hillier
Chris Jordan Wang Jun
James Karanja Bruno Le Maire
John Pombe Joseph Magufuli Cecilia Malmström
The Maltese presidency of the EU Council Paige Marvel
Theresa May Angela Merkel
Narendra Modi Pierre Moscovici
The European Parliament Committee of Inquiry into Money Laundering, Tax Avoidance and Tax Evasion (PANA) The Paris Agreement
Grace Perez-Navarro Alexandra Readhead
Heather Self TaxCOOP
Tax Justice Network Donald Trump
United Nations Committee of Experts on International Cooperation in Tax Matters WU Global Tax Policy Center






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