Trickle-down is dead: the world wants fair taxes

This blog is written by Lilianne Ploumen, Minister for Foreign Trade and Development Cooperation, the Netherlands. It is adapted from a speech delivered at the Overseas Development Institute on February 8.


Recently there has been disagreement about how to express the global ploumendisparity in wealth. A claim was made that the 62 richest people have as much wealth as the bottom 40%. Or was it: ‘two busloads of billionaires’? Or was it ‘a few hundred billionaires’? Whichever is right, the point seems to me to be that there’s something seriously wrong with the world.

I believe that tolerating growing inequality will go down in history as humankind’s biggest mistake since communism. The myth of communism was that people could be made equal and that a system as complex as the economy could be planned centrally. After the fall of the Berlin Wall, trickle-down economics became the dominant fallacy. The idea was that wealth would automatically trickle down to the poor.

This, too, has been disproved by a huge body of evidence. Last month, a British study revealed that serious income inequality doesn’t spur us on. It just makes us unhappy.

This confirms what I already suspected. People are essentially social animals and are constantly interacting with one another. They can inspire each other, but they can also frustrate, discourage and upset each other. And that is what gross inequality does, even here in the prosperous part of the world. It unravels the very fabric of our societies. It robs people of decent jobs and decent pay. And it robs them of their sense of purpose and self-worth.

The effect in developing countries is far more pernicious, because the gap there between rich and poor is of a completely different order. Inequality is the mother of all crises. Whether it’s conflict, climate change, economic stagnation or migration flows: inequality is always a major underlying cause.

What can we do? The most powerful weapon in the battle against inequality is taxation. Governments have to make good on promises to fight tax avoidance and tax evasion. The Netherlands has initiated the renegotiation of tax treaties with 23 countries. We’ve proposed anti-abuse provisions to ensure that the Netherlands is no longer an attractive option for companies looking to avoid paying taxes.

Far more tax needs to be levied in developing countries, and in a much fairer way. At present, the poor often pay a higher proportion of their income in tax than the rich. The main reason is that it’s easy to levy tax on consumer goods. Countries need to implement a progressive tax on income and wealth. But that is a complex undertaking, so they need assistance.

Morally and economically speaking, it is long past midnight. All the figures show that investing in taxation and in the poorest of the poor makes good economic sense.

And don’t forget the lesson of the British study: higher taxation makes us happier! In the Netherlands the average tax burden is thirty-odd per cent. In Scandinavia it’s in the high forties. I wish the same for every country! A good tax system is crucial if a society is to function well, provided tax revenues are spent well, of course.

We need nothing less than a paradigm shift. To the two busloads of billionaires I say: ‘trickle-down’ is dead. To the elites and the kleptocrats in impoverished countries I say: there’s a limit to how high you can build the walls around your gated communities. The time has come to pay. Make sure the payment is in taxes.

Fair taxes: that’s all the world is asking.

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