As we emerge from the restrictions imposed by the coronavirus, while other parts of the world are still very much affected by the pandemic and others yet are starting to experience the start of the second wave, a recurring theme in a lot of what I have been reading is the risk of poverty. The economic crisis caused by the pandemic is so severe that there is indeed the risk of a significant increase in poverty.

Many organisations have sounded this alarm. What attracted my attention was the report by the World Bank, which is very worrying.

The World Bank estimates that as many as 90 per cent of the 183 economies are expected to suffer from falling levels of GDP in 2020. Incomes per head are expected to decline by ‒ on average ‒ 3.6 per cent, which could tip millions into extreme poverty. The fall in world GDP would be the steepest since World War II.

The drop in the global domestic product in 2020 is expected to be over five per cent, making the current economic decline more than twice as deep as the recession triggered by the 2008 financial crisis. Moreover, that recession hit different countries at different times. The current recession has hit 90 per cent of countries, even higher than the 85 per cent incidence registered during the Great Depression at the beginning of the 1930s. This is the highest share of countries in 150 years that enter an economic recession at the same time.

The World Bank has said it expected the first annual increase in net global poverty levels in more than two decades. The initial estimates were that as many as 60 million persons will be pushed into extreme poverty this year. However, it is very probable that these estimates will be revised upwards in the coming weeks, leading people to be very thankful that at least they have food on the table and a roof on their head.

This leads me to another piece I read and to which the title of this week’s contribution refers, because there is a strong connection between the two.

The UK newspaper The Guardian had an exclusive report that a group of 83 wealthy individuals demanded “immediate, substantial and permanent” higher taxes “on people like us”. The objective is to help pay for the economic recovery from the crisis caused by the coronavirus. The link between the increased risk of poverty and the need for higher taxes is evident.

The idea of a wealth tax and increased taxes on the wealthy seems to be gaining ground

In a letter these persons sent to the G20 finance ministers, they acknowledge that the economic impact of the coronavirus, especially inequality and poverty, cannot be solved through charity, but requires strong intervention by governments. Such a strong intervention can be supported and be sustainable only by increased taxes on the wealthy. They also talk of the need of greater tax transparency.

I have said a number of times that post-coronavirus, we shall need to get used to a new normal. One of the aspects of this new normal is likely to be taxation. Over the last years, governments around the world have sought to reduce taxation, in the belief that lower taxation stimulates investment and eventually employment. However, this pandemic has shown that in spite of a lower tax regime when compared to previous years, businesses still need state support to survive. Moreover, since the last global recession (post 2008 financial crisis), the rich have got richer and income inequality has increased.

In this scenario, the idea of a wealth tax and increased taxes on the wealthy seems to be gaining ground. Moreover, as I have also stated in the past, governments will expect businesses to pay tax in the country where they earn their income and not make use of tax-efficient regimes.

Applying all this to Malta is not that straightforward. On the other hand, if our country starts losing out on tax revenues because foreign companies domiciled here will not be allowed by their own governments to benefit from our tax- efficient regime, then we would need to start thinking seriously about our taxation structure.

Over the last 30 years, we have seen a progressive decrease in income tax, as a percentage of income earned. We may be faced with a requirement to reverse this trend.