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Ministers of Germany, Brazil, South Africa and Spain: why we need a
global tax on billionaires
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When the governors of the World Bank and the International Monetary
Fund convened for the spring meetings last week, it was all about the
really big questions. What can the international community do to
accelerate decarbonisation and fight climate change? How can highly
indebted countries retain fiscal space to invest in poverty
eradication, social services and global public goods? What does the
international community need to do to get back on track towards
reaching the Sustainable Development Goals (SDGs)? How can
multilateral development banks be strengthened to support these
ambitions?
There is one issue that makes addressing these global challenges much
harder: inequality. While the disparity between the richest and
poorest countries has slightly narrowed, the gap remains alarmingly
high. Moreover, in the past two decades, we have witnessed a
significant increase in inequalities within most countries, with the
income gap between the top 10% and the bottom 50% nearly doubling.
Looking ahead, current global economic trends pose serious threats to
progress towards higher equality.
The multidimensional character of inequality is undeniable. Basic
services such as healthcare and education are not equally available to
all. Often, this inequality of opportunity is handed down from
generation to generation. Social origins, gender, race or where people
live are some of the factors that play a role in reproducing
inequalities. Furthermore, high inequality harms economic development
because it inhibits innovation and prevents people from developing
their full potential. It is corrosive to democracy and weakens social
cohesion. And where social cohesion is weak, there is less support for
the structural reforms we will need to undertake in the coming years,
such as the necessary transformation towards a net zero economy.
Fortunately, there is a growing global awareness of the importance not
only of growth, but of sustainable and equitable growth. Increasing
prosperity while tackling inequality within and across countries and
generations, including entrenched race and gender inequalities, should
not be at odds. Achieving truly sustainable growth lies in balancing
three fundamental concerns: economic, social, and environmental.
It is against this background that Brazil has made the fight against
hunger, poverty and inequality a priority of its G20 presidency, a
priority that German development policy also pursues and that Spain
has ambitiously addressed domestically and globally. By directing two-
thirds of total expenditure on social services and wage support, as
well as by calibrating tax policy administration, South Africa
continues to target a progressive tax and fiscal agenda that confronts
the country's legacy of income and wealth inequality.
It is time that the international community gets serious about
tackling inequality and financing global public goods. One of the key
instruments that governments have for promoting more equality is tax
policy. Not only does it have the potential to increase the fiscal
space governments have to invest in social protection, education and
climate protection. Designed in a progressive way, it also ensures
that everyone in society contributes to the common good in line with
their ability to pay. A fair share contribution enhances social
welfare.
With exactly these goals in mind, Brazil brought a proposal for a
global minimum tax on billionaires to the negotiation table of the
world's major economies for the first time. It is a necessary third
pillar that complements the negotiations on the taxation of the
digital economy and on a minimum corporate tax of 15% for
multinationals. The renowned economist Gabriel Zucman sketched out how
this might work. Currently, there are about 3,000 billionaires
worldwide. The tax could be designed as a minimum levy equivalent to
2% of the wealth of the super-rich. It would not apply to billionaires
who already contribute a fair share in income taxes. However, those
who manage to avoid paying income tax would be obliged to contribute
more towards the common good.
The argument behind such tax is straightforward: we need to enhance
the ability of our tax systems to fulfil the principle of fairness,
such that contributions are in line with the capacity to pay.
Persisting loopholes in the system imply that high-net-worth
individuals can minimise their income taxes. Global billionaires pay
only the equivalent of up to 0.5% of their wealth in personal income
tax. It is crucial to ensure that our tax systems provide certainty,
raise sufficient revenues, and treat all of our citizens fairly.
A coordinated global minimum levy on billionaires would constitute a
significant step in this direction. It would boost social justice and
increase trust in the effectiveness of fiscal redistribution. It would
generate much-needed revenues for governments to invest in public
goods such as health, education, the environment, and infrastructure -
from which everybody benefits, including those at the top of the
income pyramid. Estimates suggest that such a tax would potentially
unlock an additional $250bn in annual tax revenues globally - this is
roughly the amount of economic damages caused by extreme weather
events last year.
Of course, the argument that billionaires can easily shift their
fortunes to low-tax jurisdictions and thus avoid the levy is a strong
one. And this is why such a tax reform belongs on the agenda of the
G20. International cooperation and global agreements are key to making
such tax effective. What the international community managed to do
with the global minimum tax on multinational companies, it can do with
billionaires.
Fighting inequality requires political commitment - a commitment to
the objectives of inclusive, fair and effective international tax
cooperation. Surely, it needs to go hand-in-hand with much broader
approaches that reduce not only wealth inequality but also social and
carbon inequalities. The challenges that lie ahead are huge, but we
stand ready to engage in concerted multilateral action to tackle them.
* _Svenja Schulze_ _is Germany's minister for economic cooperation a
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