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Slide 1
Claire Kumar Kenya 2 nd December 2014 Taxation and Inequality
International Tax Academy on Tax Justice: Financing Development in
Africa
Slide 2
Inequality: an issue for our time Who is talking about it? What
is behind the acceleration of the debate?
Slide 3
Why do we care? The moral position The inequality-poverty
connection Global research: inequality matters significantly in
determining global poverty projections (Peter Edward and Andy
Sumner, The Future of Global Poverty in a Multi-Speed World: New
estimates of scale and location, 2010-2030, Centre for Global
Development, 2013 More unequal societies have worse social outcomes
Wilkinson and Pickett, The Spirit Level: Why Equality is Better for
Everyone Conflict, violence and insecurity Money buys power
Slide 4
Slide 5
How big is the problem anyway? Oxfam: Even it Up: Time to end
extreme inequality, 2014 85 richest people as wealthy as the
poorest half of the world Saez: US income 2009-2012 Top 1% up 31.4%
Bottom 99% up 0.4% OECD: 3 decades prior to 2008 Wage gaps widening
and income inequality increasing in a majority of countries
Slide 6
And in sub Saharan Africa?
Slide 7
The IMF says: On average across the region income inequality
appears to be decreasing, but Their data is old (up to 2005) Of 40
countries studied: For 17 it was decreasing For 9 it was increasing
(Niger, Rwanda, Ghana, Cote dIvoire, Madagascar, Mozambique,
Nigeria, Tanzania, Mali) 14 countries left out (including Angola,
Cape Verde, Comoros, Liberia, Namibia, Zimbabwe ) Francesca
Bastagli, David Coady and Sanjeev Gupta, Income Inequality and
Fiscal Policy, IMF Staff Discussion Note, SDN/12/08, June 2012
Slide 8
TJN-A research: 8 countries: Ghana, Kenya, Malawi, Nigeria,
South Africa, Sierra Leone, Zambia, Zimbabwe
Slide 9
TJN-A findings on inequality Ghana and Nigeria: income
inequality consistently increasing South Africa, Kenya and Malawi:
fluctuations, including recent increases South Africa: note the
sharp rise of the top 5% Zambia: early declines but now rising fast
Sierra Leone: consistent declining trend (but very limited data)
Zimbabwe: no data
Slide 10
TJN-A findings on inequality: Nigeria 1986-2010 Ghana 1988-2006
South Africa 1993 - 2011 Zambia 1993-2010 Change in income share of
10% richest +17%+20%+15%+21% Change in income share of bottom 40%
-9%-19%-18%No change Word Bank, Poverty and Inequality Dataset
Slide 11
Why is inequality rising? The growth model? The taxation
model?
Slide 12
Why tax matters? Redistributive measures Progressive taxation
Land reforms Increasing incomes of the poor Setting / increasing
minimum wages Social protection systems (basic income grants /
unemployment benefits, cash transfers, pensions, public works
schemes etc.) To tackle inequality we need:
Slide 13
How much difference does it make? Before tax and welfare
spending, Germany and Belgium are more unequal than the US (Ha Joon
Chang) Inequality in Latin America and the Caribbean is similar to
many developed nations the differences lies in policies of
redistribution Series of studies in Latin America: they all suggest
slightly regressive tax systems which far from improving the
distribution of income, actually encourage greater inequality
(ECLAC, The Tax Gap and Equity in LAC, Fiscal Studies No. 16, 2010)
Absence of studies related to inequality before and after tax in
sub-Saharan Africa
Slide 14
A taxation model gone wrong Declining top marginal income tax
rates (1970s: 70%) Tax consensus: ignore redistribution aspects
focus on consumption/sales taxes Weakening corporate tax
contributions Exemptions/incentives International corporate tax
system not fit for purpose Poor extractives taxation models Poor
performance of other asset and income taxes PIT (outside of PAYE);
Property tax ; Capital gains Major challenges taxing High Net Worth
Individuals Enabling financial secrecy and proliferation of use of
tax havens TJN-A thesis: financial secrecy and tax havens
undermines progressive taxation: Can Africa achieve progressive
taxation in this context?
Slide 15
What can we do about it? Global wealth tax? New income tax
consensus: the 1% should pay tax at 80% (Saez and Piketty) An
alternative approach to international corporate taxation Reform
international tax rules to ensure a fairer allocation of tax
between countries (including removing the rationale for the use of
secrecy jurisdictions) Reform countries tax systems which have
particularly harmful spillover impacts Move from a damaging
framework of global tax competition to an enlightened framework of
tax cooperation.
Slide 16
What can we do about it? Refocus revenue authorities (and donor
assistance) on direct taxes of income and assets Corporate income
tax Personal income tax Capital gains tax Property tax Enforce
minimum standards on data: Inequality before and after tax (and
social spending) Tax incidence analysis per tax type