How Taxing The Super-Rich Can Calm Global Tensions

-OpEd-

BUENOS AIRES — Socio-political extremism and polarization have the wind in their sails these days, notably in Europe, Latin America and the United States. This was amply illustrated in recent European Parliament elections where the far right won big, allowing it to further destabilize politics in France and Germany.

To counter this existential threat to social peace, governments must invest in quality public services that make real differences to citizens’ lives, including education, healthcare and infrastructure. That begs the question: Where will they find the money to fund those services?

The answer is simple: the money is to be found in the hands of multinationals and the world’s billionaires, all experts at hiding their wealth to avoid paying their share of taxes.

A popular idea

The good news is that the idea of a minimum tax on the super-rich is gaining ground. It is a both sensible and, as polls show, very popular idea. In a poll by Earth4All, a grass-roots project to reform global finances, 68% of respondents backed more taxes for the rich to finance significant changes to the economy and quality of life.

And in a poll sponsored by Patriotic Millionaires, an American millionaires’ NGO, 60% of respondents saw an increase in inequalities as threatening democracy. More than 60% of the 800 people questioned (all with assets worth more than billion excluding properties), backed worldwide moves to tax the super-rich.

In other words there is a general perception that the present system is outdated, unfair and full of loopholes for those who do not need them.

The G20 Brazilian presidency recently made a notable suggestion to set a global standard of a minimum 2% tax for the world’s wealthiest individuals, who number about 3,000. A colleague of mine at the Independent Commission for the Reform of Corporate Taxation (ICRICT), Gabriel Zucman, has elaborated a relevant plan of action that will be published in July, ahead of the G20 summit in Rio de Janeiro in November.

Several countries, including Spain, France and South Africa already favor the initiative, while Italy promised at a recent G7 summit to boost its fiscal collaboration with Brazil.

Rescuing emerging economies

A decade ago, the Panama Papers and Pandora Papers, all revealed by whistleblowers, opened people’s eyes to the issue of billionaire tax evasion, prompting G20 and OECD states to forge their two-pillar solution on a minimal, global 15% tax rate for corporations.

That was a step forward in a process of reform, though not entirely beneficial to developing countries. Dissatisfied both with the proposal and the negotiating tactics that had led to it, the group of states referred the matter to the United Nations. Last November, the UN General Assembly massively approved a solution to the tax conundrum proposed by the African Union.

The vote initiated negotiations for a UN Framework Convention on International Tax Cooperation. An ad-hoc inter-governmental committee is currently drafting its terms of reference, to be presented in August. There is also regional progress on this front, with the creation in Latin America of PTLAC (Regional Tax Cooperation Platform for Latin America), chaired by Chile this year.

Investing in public services may be the best remedy to pervasive anger, extremism and demagoguery.

If the current collaborative trend continues, developing countries may come to dispose of resources needed to invest in better services, specifically those needed to respond to the biggest challenges, such as the climate emergency.

Public services have sadly taken a battering after decades of privatization, a trend that may be reversed in part with the collaborative instruments that Brazil and the African Union have proposed. They may be the only hope for emerging economies submerged in debt and struggling with inflation to meet the needs of their societies.

Taxing multinationals and the super-rich at fair rates would generate funds needed to reinforce social cohesion, and help states overcome certain threats to their democratic systems.

Quality public services are basic to the functioning of a society, and a tool to tackle global challenges and create real change. Investing in them may be the best remedy to the pervasive anger, extremism and demagoguery we are seeing in the most unlikely places — and a guarantee of all our futures.

Sepúlveda is a UN senior civil servant specialized in taxation and development.