With Rising Inequality, Stricter Taxes can Fund a ‘New Development Paradigm’

25 Jan 2019

Fon Mathuros, Head of Media, World Economic Forum: Tel.: +41 (0)79 201 0211; Email: fmathuro@weforum.org

· Closing tax loopholes and holding businesses to account can help redistribute funds to fix social inequality

· The challenge of climate change could provide the “moral equivalent of war” to galvanize humanity into action

· For more information about the Annual Meeting, visit www.weforum.org

Davos-Klosters, Switzerland, 25 January 2019 – In the midst of a crisis of inequality where global growth has economically disenfranchised billions, experts called for stricter tax policies that can spread wealth and fund a new paradigm of development, in a session hosted by Time magazine on the closing day of the World Economic Forum Annual Meeting.

“Extreme inequality is out of control,” said Winnie Byanyima, Executive Director of Oxfam International. “Talking about it isn’t good enough… It’s undermining our economies, fracturing our societies, fuelling crime and ill-health. It’s bad for all of us.”

The solution, she and other panellists posited, is to close loopholes of tax evasion so that governments can reinvest in health, education and social protection. “We want business to commute to good tax behaviour not to dodge paying their fair share of taxes,” noted Byanyima. “We want governments to tax fairly.”

Alicia Bárcena Ibarra, Executive Secretary of the United Nations Economic Commission for Latin America and the Caribbean (ECLAC), said: “Equality is an irreducible ethical principle.” She stressed that it is also “a prerequisite for development” – though not one of growth – as economies are inefficient without the equality that incentivizes education and healthcare, in turn driving productivity. “Equality, productivity and democracy come together,” she said.

The ratio between executive pay and that of an average worker has grown from 30:1 in 1978 to 312:1 today. The top income tax rates in 1970 worldwide was 62%; that has been negotiated down to less than 38% in rich countries, and 28% in developing countries. In many countries, high tax rates on the rich have been abolished, while $170 billion every year is taken to tax havens.

Shamina Singh, President of the Mastercard Center for Inclusive Growth, also noted the rising gap of information inequality, where “the information haves and the information have-nots are getting further apart” in a world where understanding of data, artificial intelligence and machine learning affects capabilities.

Rutger Bregman, author and historian at De Correspondent, talking of tax avoidance, put it more succinctly. He said: “It feels like I’m at a firefighters’ conference and no one is allowed to speak about water.” He called for the “moral equivalent of war” to change the world’s unequal growth paradigm, saying that it might be provided by the existential challenge of climate change.“We’ve broken the link between intellect and wisdom,” bemoaned Jane Goodall, Founder of the Jane Goodall Institute. She called for “love, compassion and making decisions not based on how this will help my bank account … but how will it affect future generations.”

Goodall gave an impassioned plea to protect the natural world. “As we destroy the natural environment,” she said, “we are destroying our own future, our own children and grandchildren. We all care about them, but we’re not thinking about how what we do today is stealing their future.”

In addition to tax enforcement, participants held up job creation as another solution, provided that the jobs are high-quality and with wages above the threshold of the poverty line, allowing for workers’ unions to negotiate salaries. Technology also has a role to play; for example, by empowering youth through micro-credit platforms.

Byanyima said: “We need to debunk the myth that you need first to achieve higher growth before you reduce inequality. Actually, when you reduce inequality, it can lead to more sustained and faster growth.”

Ibarra added: “The cost of equality would be tertiary education for all, universal access to healthcare, nutrition in the first years of a young child’s life, and labour inclusion, with all jobs earning above the poverty line.” In Latin America, she noted, 47% of workers are informal and don’t earn about the poverty line. She summed up by saying:

“We need a new development paradigm, new patterns of consumption and production.”

The World Economic Forum Annual Meeting brings together more than 3,000 global leaders from politics, government, civil society, academia, the arts and culture as well as the media. Convening under the theme, Globalization 4.0: Shaping a Global Architecture in the Age of the Fourth Industrial Revolution, participants are focusing on new models for building sustainable and inclusive societies in a plurilateral world. For further information, please click here.

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