Reports are indicating that the world’s 10 richest persons have increased their wealth by around €500 billion. It is claimed that this amount is enough to provide the coronavirus vaccine to the total population of the world. This increase in wealth has exacerbated the income inequalities that already existed between the richer countries and the poorer countries, and between rich people and poor people.
If one places income inequality in a historical perspective, one notes that from 1945 till the end of the 20th century, this inequality diminished. The gap narrowed thanks to socially oriented policies in several parts of the world. While being rich or becoming rich was not stigmatised, there was a drive by several governments to reduce income inequality, because such inequality is seen to harm a country’s political system as well as its economy.
Unfortunately, the gap started to widen again as a result of the crisis in the international financial markets and the subsequent economic recession. It had been described as the worst economic recession since the Great Depression of the 1930s. Until pre-coronavirus, in several countries, incomes had not yet recovered to the levels experienced before the 2007 financial crisis. With the onset of coronavirus, those incomes got another knock downwards, while the wealth of the super-rich continued to increase.
In order not to burden future generations… governments will need to look at their respective system of taxation and probably do the unthinkable – tax the wealth of the super-rich
This has placed governments between a rock and a hard place. Governments are asking themselves how much longer they should continue to pump money into the economy to support employees and businesses. They need to understand from where they can get the resources to reduce the fiscal deficit.
For some, the answer seems to be clear. The rich should bail out the poor. Squeeze the super-rich, they would say. Introduce a tax on wealth, others would echo. Those opposing such ideas would cry out that this is communism.
The idea of wealth taxes (levies on assets rather than income) as a way of increasing government revenues is gaining momentum even in countries that have always been considered the bulwark of capitalism, such as the UK and the US, not to mention also strong economies, that are more known for their social market economy policies, such as Germany.
The European Parliament is pushing to ensure that the global tech companies such as Amazon, Google, Facebook and Apple pay all taxes due and do not make use of friendly tax regimes to pay as less tax as possible. In the budget presented on Wednesday, the UK Chancellor of the Exchequer, Rishi Sunak, increased the corporate tax rate to fund raise money to cover the fiscal deficit caused by the financial support provided during the pandemic.
However, there is a moral issue that needs to be considered. Admittedly, millionaires can be taxed through a progressive taxation system and that should, up to a certain point, be a no-brainer. The moral issue is whether the world’s governments should allow a small number of persons to benefit from the pandemic in a manner that can only be described as scandalous. As someone put it, does the existence of billionaires reflect a policy failure somewhere? Students of economics would tell you that in a freely competitive market, businesses do not make super-normal profits.
This is something similar to what happened after the two world wars of the 1900s. A small group of industries emerged from those wars stronger than ever, while the economy of various countries lay in ruins.
It could well be that the coronavirus pandemic shall eventually represent a crossroad for governments. Should they continue to overtax persons with fixed known salaries in the lower- and middle-income brackets and continue to under-tax wealth? Should governments continue to look the other way when faced with the issue of unexplained wealth of individuals?
In order not to burden future generations with the fiscal debt that has been run up during the pandemic, governments will need to look at their respective system of taxation and probably do the unthinkable – tax the wealth of the super-rich.