Fighting inequality through fair taxation and public service provision for all

The role of aid and fiscal policies in reducing inequalities: Promoting progressive taxation, public services and gender equality

A3
High-level panel - Auditorium
Wednesday, June 19, 2019
11:30 to 13:00

High economic disparity is detrimental to economic growth and the achievement of the 2030 Agenda for Sustainable Development. Increasing income and wealth inequality, coupled with persistent gender inequality, erodes social cohesion and leads to political polarisation. This session will explore the intersectionality of economic inequality, lack of public services and regressive taxation, which traps people in poverty and disproportionately impacts women. With a growing consensus on the role of fiscal policies and official development assistance to generate sufficient revenue to support quality public services, this panel will discuss the most effective ways to ensure just mobilisation and distribution to benefit all people.

Key points

  • Reducing inequality by 1 % will have a far greater effect on combatting poverty than increasing annual growth by 1 %.
  • Global inequality has fallen but in-country inequality has risen. The best way to fight inequality is through fiscal redistribution and gender-sensitive budgeting.
  • We have to look at raises taxes and public spending jointly.
  • Redistribution through taxation only works if taxpayers see they get something useful in return over the long-term and if governments are seen to be accountable for their spending.
  • The world urgently needs a new international tax regime.

Synopsis

Reducing global inequality by just 1 % would be a much more effective way of combatting poverty than increasing annual growth by 1 %. The good news is that global inequality has fallen over the past three decades, due largely to China’s and India’s success in lifting more of their citizens out of extreme poverty.

Nevertheless, according to Oxfam, some 82 % of global wealth generated in 2017 went to the richest 1 % of the world’s population, while the poorest half of the world saw no increase in their wealth. ‘Fiscal redistribution and better gender inclusion are key to reducing inequality,’ said Victoria Perry, Deputy Director, Fiscal Affairs Department, International Monetary Fund. But, said Perry, we have to address tax raising and public spending jointly, because redistribution will only tackle inequality if spending priorities target the right areas.

Many emerging economies face a choice between using tax revenues to finance direct cash transfers, which can alleviate inequality in the short term, or to finance investments in health and education. These cash transfers have been shown to deliver better long-term results. Some larger Latin American countries have had success with conditional cash transfers – offering households cash as long as they enrol their children in full-time education or take advantage of available healthcare. Another way to boost equality is to ensure income taxes do not capture the poorest.

 

For Sephutile Mhlongo, a young leader from Eswatini (formerly Swaziland), what governments do with the money is more important than how they collect it. Who sets the priorities for government spending? She called on far greater engagement with civil society on the issue. ‘We don’t have sufficient young voices who criticise the budget and its implications,’ said Mhlongo. She also called for more allies or ‘change agents’ within government to ensure tax revenues are directed towards reducing inequality.

 

An economy’s ability to raise taxes relies on a long-term compact between government and society, in which taxes are seen to deliver benefits and the government is held accountable for its spending. Félix Fernández-Shaw, Director, European Commission DG DEVCO, put it simply: ‘What makes people pay taxes is that they get something in return.’ Wealthy countries should also do more. Currently they direct just 0.1 % of their US$146 billion of global aid towards supporting developing countries collect taxes.

Several panellists called for an overhaul of the international tax system. The IMF’s Victoria Perry suggested setting a level for global minimum taxes to minimise the tax competition that often harms low-income countries. Cécile Duflot, Executive Director, Oxfam France, called for concerted action to ensure multinational companies pay their taxes in the countries where they make their profits.

Insight

‘I do not like aid because it creates dependence. I am happy to encourage my government to take more responsibility for their people.’ Sephutile Mhlongo, Young Leader, Eswatini

Organised by

Speakers

Moderator
Michael Peel
European diplomatic correspondent
Financial Times Group
Cécile Duflot
Executive Director
Oxfam France
Lucas Chancel
Codirector of the World Inequality Lab
Paris School of Economics
Félix Fernández-Shaw
Director
European Commission DG DEVCO
Sephutile Mhlongo
Young Leader - Kingdom of Eswatini
Victoria Perry
Deputy Director, Fiscal Affairs Department
International Monetary Fund