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A slight discrepancy in the numbers

Sometimes, a straight, even dryly-written news-wire report can tell you about the vastly different interpretations of certain issues out there. This Bloomberg report about the world of “offshore money” is a classic case in point. The whole article is worth reading, but this caught my eye:

“According to Tax Justice Network, a U.K.-based organization that campaigns for transparency in the financial system, wealthy individuals were hiding as much as $32 trillion offshore at the end of 2010. Fewer than 100,000 people own $9.8 trillion of offshore assets, according to research compiled by former McKinsey & Co. economist James Henry.”

That is one hell of a contrast. You have the TJN’s $32 trillion, or $9.8 trillion. Take your pick.

Suppose TJN is correct. $32 trillion is a lot of money. And I ask myself how on earth a leftist campaign group such as the Tax Justice Network comes up with that figure. According to Wikipedia’s page on the size of the global economy, the latest available figure for the value of total GDP, based on the 20 richest countries, is $18.8 trillion. So maybe there is a “long tail” of money from smaller economies, but even so, it is a bit of a stretch to arrive at $32 trillion, and then to assume that this money is all parked, or routed via, offshore centres. And even if some of this huge amount of money does pass via offshore centres (such as Bermuda, Caymans, Jersey, Delaware, Zurich, Geneva, and er, cough, London) it does not stay there, but is invested in various places. (What would be the the point of just stashing money in a nice Caribbean island rather than putting it to work?)

I have come to the conclusion that while some of the concerns about offshore wealth might be justified if we are worried about finances of criminals and the like, some of the amounts being bandied about are so vast that the credibility of the attacks is seriously compromised. And I remain convinced that much of the current furore about the offshore world is based on a desire by some policymakers to stamp out tax competition and create a sort of global fiscal cartel.

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15 comments to A slight discrepancy in the numbers

  • RRS

    And I remain convinced that much of the current furore about the offshore world is based on a desire by some policymakers to stamp out tax competition and create a sort of global fiscal cartel.

    Ditto

    Which might be amended to most.

  • The Pedant-General

    Whilst you may well be correct (the TJN is one of the MurphMeister’s outfits so it’s almost certainly rubbish judging by the rest of his output), you have compared the wealth which is a stock, with GDP which is a flow. The two are not comparable. In accounting terms you’ve compared Turnover (or possibly profit) on the P&L with Balance Sheet Net Assets.

  • Johnathan Pearce (London)

    PD, that may be correct, but the gap is still vast, however one slices and dices it.

  • Rich Rostrom

    Is there actually a discrepancy?

    The TJN figure is for total offshored assets; the Henry figure is for assets offshored by the biggest 100,000 offshorers.

    In which case the TJN figure includes the Henry figure and other assets.

  • Laird

    I found it interesting that near the beginning of the article the author quotes one Philip Marcovici, described as a Hong Kong-based tax lawyer and wealth advisor, as saying that for many people the objective of maintaining offshore accounts is not avoiding taxes but rather “obtaining the human right to privacy and seeking confidentiality about their financial affairs,” but in the very last paragraph he’s quoted as saying “We live in a world where you only have two choices: play by the rules of the country you live in, or get out if you don’t want to play by the rules.” Somehow, I don’t think I’d want him advising me.

  • bloke in spain

    Curious, but you’re talking, like the TJN, as if the money is bundles of notes stashed in a vault somewhere. The money isn’t offshore. It’s invested in the world’s economies. The only thing that’s offshore is part of a paper trail.

  • Natalie Solent (Essex)

    bloke in spain,

    Yes, as Johnathan said at the end of the penultimate paragraph, “…it [the money] does not stay there, but is invested in various places. (What would be the the point of just stashing money in a nice Caribbean island rather than putting it to work?)”

  • Paul Marks

    I used to suggest to the leftists, when they came up with absurd revenue numbers (which they got by counting the same money many times over) for their financial transactions tax and so on, that “why do you not just say you will raise a Zillion Pounds and have done with it”.

    I meant it as mockery – but they seem to have taken it as advice.

    32 trillion, a zillion, whatever…..

  • Plamus

    Jonathan, while I agree with your conclusion that this is about eliminating tax competition, and I have big reservations about both GDP statistics and offshore assets, you are looking at the wrong GDP stats. The Wiki page you linked to has world GDP at $70 trln (nominal) and $80 trln PPP as of 2011. The GDP of the US alone as of the end of Q1 2013 is just over $16 trln (source).

    These are the preparatory stages for the next step money-starved gov’ts will be “forced” to take – taxing wealth. Once you know where an asset is, attaching a tax liability to it will be relatively easy (example). I am no gold bug (much as I despise Warren Buffett, I agree with his opinion on gold), but physical metals do have that little feature going for them that you can bury them somewhere out of the reach of the taxman taxperson.

  • Eric Tavenner

    And I ask myself how on earth a leftist campaign group such as the Tax Justice Network comes up with that figure.

    From the same place almost all leftists get their figures, thin air.

  • Bill Reeves

    Erm, I believe you’ve got the wrong GDP numbers. The US economy just passed the $16 Trillion mark recently so the top twenty would need to be much higher. OF course it could be that the US is no longer one of the top 20 courtesy of our Federal Looters.

  • Gareth

    Offshore money is not hiding. The wealthy people and those they have entrusted that money with know exactly where it is. It’s just not where the Tax Justice Network would like it to be.

    When the topic of offshore wealth comes up in the media it is rare for anyone to give much time to explaining why large amounts of the wealth that is offshore is there perfectly legally and has already been taxed or no tax is due. They also rarely suggest that governments could spend less and that the tax system could be simpler.

  • Johnathan Pearce

    Some responses to various queries of the numbers: world GDP, as Plamus writes, is indeed $70 trillion in total. And people are right to note that GDP and wealth per se are not the same thing. Even so, it strikes me as a stretch to suppose that around half of, say, the value of global GDP is stashed offshore. At most, the bulk of that money is merely going via such offshore centres to be used to finance activity of one kind or another.

    The McKinsey figure showing that fewer than 100,000 people own offshore assets worth $9.8 trillion seems to be incongruous when put next to the TJN figure, since if the TJN figure is correct, then a very much bigger group of people – many millions in fact – own offshore assets, which means that offshore is not, by the TJN’s own figures, purely a route for the mega rich, but for a large chunk of people around the world.

  • PeterT

    “while some of the concerns about offshore wealth might be justified if we are worried about finances of criminals and the like”

    I don’t really agree with this. Most of the money from crime in tax havens will be from victimless crimes – in particular drugs. Even if you believe that selling drugs should be illegal, it only takes one more law from parliament to make some other economic activity illegal – e.g. banning cigarettes.

    Even if the crime was not victimless, e.g. theft, I bet that in practice victims are almost never restored even if the police got their man and got authority over his accounts.

  • Toolkien

    Assets are the cumulative amounts saved over time while GDP is for a year. In the US, GDP is approx. 16T, and estimated individual wealth is approx. 55T. They are saying a portion of wealth from prior GDP’s left in individual hands is too far off the Statist radar.