FOR 40 years or more, governments holding fast to neoliberal principles have set in train what US Treasury Secretary Janet Yellen rightly called a “race to the bottom” on global taxation, as countries deluded themselves that lower corporation taxes would mean more investment and more growth.

This deal is the clearest sign yet that the days of neoliberalism — the belief in privatisation, low taxes for the rich and subservience to the market — are finally drawing to a close.

Giant corporations were able to exploit the rules on international taxes, originally drawn up for a very different world in the 1930s, to almost pick and choose where and how much tax they paid.

The new Big Tech corporations that dominate our digital world were amongst the worst offenders here. Microsoft in 2019 made $220bn profits globally, but paid precisely zero in corporation tax thanks to skilful exploitation of the system. It meant that some of the richest and most powerful companies and individuals on the planet would regularly pay lower taxes than their employees.

So a minimum corporation tax, forcing companies operating out of the G7 economies to always pay at least the global minimum in their home country, is a major turn in global policy.

In addition, a second part of the agreement says that major, profitable companies will have to pay at least some taxes in the places where they do business — rather than where they claim to be making the profit. Digital corporations, again, have been very adept at “booking” their profits in ultra-low tax locations like Ireland even as they generate revenues right across the world.

Closing this massive loophole, as wealth economist Gabriel Zucman says, means that the “business model” of tax havens is “severely undermined” and “ultimately destroyed.” Tax havens are no use for those seeking to dodge taxes if they end up having to pay the same amount wherever they try and claim profits are made.

Lurking behind the accord at the G7 was an increasingly bitter dispute between France and Britain, in particular, and the US over how to effectively tax the mainly US-based digital giants.

France and Britain were both introducing versions of a “digital services tax” to claw back some of the lost tax money by taxing digital company revenues, but this was adamantly opposed by both the Trump and Biden administrations.

The US had even threatened a future post-Brexit trade deal with Britain over the issue. The new G7 agreement potentially supersedes these country-specific digital taxes, but the precise details of the new taxes to be levied on multinationals is still to be finalised.

The calculation was likely made by the major powers that a system with clear rules and agreements on the balance of taxation was preferable to endless tit-for-tat negotiations over tax rates and arguments over collection. And the digital companies themselves, no doubt recognising which way the wind was blowing, have been either muted or even, in the case of Facebook’s frontman Nick Clegg, making a show of welcoming the changes.

Chancellor Rishi Sunak has been talking up his government’s own role in winning the change, but this is typically baseless. It was Britain’s opposition to the global minimum tax that, as every other G7 member knows, was holding up an agreement.

Domestic pressure from campaigners and the Labour Party combined with international arm-twisting from the likes of France dragged the British government into supporting the change.

It’s a good example of how skilful campaigning, applying pressure at the right weak points, can make a difference, but Sunak’s own role in winning the deal was obstructive almost until the last minute.

Next steps are to finalise points of implementation, with the agreement still needing to pass through individual country legislatures — ominously including both US Houses of Congress. In this case, hostility by at least some Republicans to the digital giants, whom many see as pursuing a “woke,” anti-Trump agenda, is likely to help pass votes.

The G20, a larger grouping also including major, fast-growing economies like China, is set to discuss the proposals in its July meeting, to be held in Cornwall, with the G7 agreement likely to help bolster support. And the OECD group has been hosting mammoth, 140-country talks on reforms to global corporate taxation that are due to report in October; prior agreement by the G7 and G20 will help the passage of any broader tweaks agreed there.

This all has to be seen as only the start. Joe Biden’s original proposal was for a 21 per cent global minimum tax, but that figure has been whittled down under international pressure from lower-tax G7 nations like Japan and to appease a few notorious but powerful Democratic voices in the US, like Senator Joe Manchin who has repeatedly insisted on lower corporate tax rates.

But the average OECD headline corporate tax rate is 25 per cent and with most major multinationals headquartered in bigger developed economies, the changes may do little for the developing world as increased tax revenues can be expected to go where companies claim their HQs.

Oxfam and other campaigners are right to say the minimum rate is too low. We are a long way from a genuinely progressive international tax system and at the very least governments like Britain should be pushing for an increase in the minimum to at least 25 per cent. But whatever its limitations, the deal marks an important turn against neoliberalism globally and a potentially important stepping stone to a fairer world economy.

James Meadway is a former adviser to John McDonnell and former chief economist for the New Economics Foundation — follow him on Twitter @meadwaj.