International agreement on the need to take action against rising and damaging economic inequality is gathering pace.
- The World Economic Forum’s (WEF) ‘Outlook on the Global Agenda 2014’ ranks widening income disparities as the second greatest worldwide risk in the coming 12 to 18 months.
- President Obama has made it a priority for his administration 2014.
- Pope Francis has called on business leaders to “ensure that humanity is served by wealth and not ruled by it.”
- The IMF’s Christine Lagarde last week said inequality damages long term growth and wastes human potential.
- UN head Ban Ki-moon has urged the international community to tackle inequalities between regions and within countries.
- World Bank President Jim Kim has described massive income inequality as a stain on our collective conscience and committed the Bank to advancing shared prosperity.
- Oxfam’s recent report ahead of the Davos WEF, revealing that the world’s 85 wealthiest people have as much wealth as the poorest 3.5 billion people, has received worldwide attention.
We have a shared agenda – now what’s needed is a shared plan of action.
Each nation and region has its own circumstances, and there is no one-size fits-all solution. But we know that in countries which have successfully reduced inequality, progressive taxation has been an important tool, enabling governments to invest in good quality health care and education for their poorest citizens.
Tackling tax havens
In the last 30 years, an expanding global network of tax havens has hidden huge amounts of wealth - we conservatively estimate $18.5 trillion is held offshore. This is largely untaxed, holding back billions that could be spent on tackling poverty and boosting economies.
This network of secrecy also facilitates the draining of large amounts of capital from the poorest countries. Some $950 billion left developing countries in 2011 in illicit financial flows. It is estimated that between 2008 and 2010, sub-Saharan Africa lost on average $63.4bn in this way each year – almost exactly the financing gap between what 20 poor countries have and what they need to meet the Millennium Development Goals.
At the same time, the ‘race to the bottom’ effect of very low tax jurisdictions has further contributed to ever-lower corporate and personal tax rates for the richest individuals and corporations. In Zambia for example, copper exports in 2011 generated $10 billion, while government revenues from the resource were just $240 million – this in a country where more than two-thirds of people live in extreme poverty.
Time for action
Last year, acknowledging that for prosperity to be sustained it must be shared more equally, the G20 endorsed a plan to clamp down on tax dodging by multinational corporates. Now leaders must get down to the work.
New global rules on corporate tax dodging are needed. Making inequality reduction a measure of progress alongside GDP growth is important. And investing in high-quality public health and education services will be crucial investments in productivity and a more equal world.
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