OXFAM Inequality Report – Sign of Economic Health or An Economic Crisis??

The annual OXFAM report makes for another distressing reading with world’s billionaire, totalling just 2,153, owing more wealth than 460 crore or 60% of humanity on earth! Further, wealth owned by top 1% is twice that of 690 crore or 90% of humanity. What makes it worse is that governments across the world are in no way, equipped to arrest the increasing concentration.

And if that doesn’t help you visualize the concentration of wealth, consider this. Even if an individual (or his/her forefathers) was saving as much as $10,000 per day since the building of pyramids in Egypt, his accumulated wealth would still be only 1/5th the average of five richest billionaires! While a small part of this would be innovation and hard work, 1/3rd of it is inheritance and another part, a result of monopolies (at global level) accentuated by cronyism. The ability of private interests to influence privatization deals, to secure natural resources at throw away prices, corrupt public procurement, tax exemptions and loopholes are all ways in which well-connected private interests can enrich themselves at the expense of the public.

The inequality gets further accentuated as a result of collapse in taxation of the super-rich individuals and the corporations owned by them and deliberate tax dodging. As per the report, only 4% of total taxes is contributed by wealth tax. The report states that super-rich avoid as much as 30% of their tax liability. While the middle class would be happy receiving a generous dividend with low corporate tax rates, they do not realize that better part of this has gone to the top 1%, something that should have gone to the government or the wage earners. As per the report, during 2011-17, average wages in G7 countries increased by 3%, while dividends grew by 31%. The report quotes the study by Thomas Piketty and his team which shows that between 1980 and 2016, the richest 1% received 27% of global income growth against only 12% secured by bottom 50%.

In their pursuit by finding ways and loopholes to avoid and evade taxes, they are aided, willy-nilly, by the armies of tax advisers at their service. Multinational corporations exploit loopholes in tax codes to shift profits to tax havens and avoid taxes, costing developing countries an estimated $100bn. It is pertinent to note that just 0.5% of additional tax on top 1% for next 10 years could help create nearly 12 crore additional jobs and meet education, healthcare and similar needs.

Tax dodging by the wealthy deprives governments of resources leading to reduction in social programmes and other development activities. Increasingly, they are relying on the advice of agencies like IMF which is further perpetuating the inequality. Oxfam quotes an IMF program of relying on VAT to raise resources, which has hit poor the hardest.

Other than the aggregate inequality, the report rues over increasing gender inequality with majority of females having to bear a large part of unpaid work. As per the report, women & girls spend over 12 billion hours of unpaid work every day. This could still be an under-estimation as it corresponds to just 4 hours of such work with world population of 7.7 billion. The work corresponds to over $10 trillion of value addition worth a modest $2.4 per hour. The report also notes the impact of childcare support on productive engagement of females. Countries where the government provides childcare support, either through direct provision or subsidies, 30% of women are in waged employment, compared with just 12% in countries without such policies.

So, what are the options left for the humanity? The first is to stop celebrating wealth as a sign of economic growth but a malaise. The economic growth parameters must be changed from the size of the economy to the size of wealth held by the bottom 50%. While the billionaires could be running the engines of economy, the same should not scare governments from taking harsh decisions and cracking down on loopholes. The narrative needs to move from the problem of ‘tax terrorism’ to ‘wealth terrorism’. While global co-operation has made some progress lately, it has happened, possibly, a few decades too late. Yet, there are still inadequate global tax rules which need to fixed urgently.

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