A year after Thomas Piketty’s investigation into global inequality captured the attention of the world’s economic thinkers, policy-makers in political-monopoly states are taking his lessons to heart in their annual budgets.
Governments in South Africa, Hong Kong and Singapore adopted a decidedly populist bent this week, expanding help for lower-income households and, in some cases, boosting levies on the wealthier members of society.
China, which has taken steps to strengthen its health-care and social security programs in recent years, releases its budget next month.
The moves reflect in part social tensions that have risen as inequality climbed. Singapore, dominated by one party for 50 years, faces a potential election this year.
Hong Kong, whose leaders are overseen by Communist China, saw a surge in protests last year, while South Africa saw economic growth hurt by labor strikes.
“I wouldn’t be surprised if we see more of this,” said Shang Jin Wei, chief economist at the Asian Development Bank (ADB) in Manila. “Thomas Piketty’s book inspired interest into looking into this issue and, therefore, increasing taxes is partly a response to that.”
Helping poor
In Singapore Prime Minister Lee Hsien Loong’s government on Monday announced its first increase in decades to the top income-tax rate, to help pay for a new benefit for low-income elderly. Rival finance hub Hong Kong said on Wednesday it will provide extra allowances for the poor and elderly.
South Africa is raising income taxes for the first time in two decades, mainly targeting wealthy earners. The tax rate will increase by 1 percentage point for all taxpayers except the lowest earners.
China’s leaders may join such initiatives, according to Wei—he highlights that the tax system in the nation ruled by the Communist Party since 1949 favors the wealthy by not taxing capital gains or inheritance.
“China’s tax system is more favorable to the rich than America’s tax system,” he said. “Over time I expect China to adjust its tax system toward a global norm.”
According to the ADB, while Asia has enjoyed two decades of rapid economic growth and halved the number of people living in extreme poverty, income inequality rose by 20 percent.
China’s gross domestic product (GDP) grew by an average of around 10 percent a year between 1990 and 2012. The country’s Gini coefficient, a gauge of inequality, increased to above 0.47 in recent years, from below 0.3 in the 1970s, according to the ADB.
G-20 attention
The global debate on the socio-economic disparities may be gaining steam. This month Group of 20 (G-20) finance chiefs for the first time highlighted income inequality across the world as a growing concern.
“In some countries, potential growth has declined, demand continues to be weak, the outlook for jobs is still bleak and income inequality is rising,” the G-20 said in a statement after finance ministers and central bankers held talks in Istanbul.
That move was significant from a body that was tasked with coordinating international economic policy in the wake of the 2008 financial crisis.
Further political pressure may come later this year, when the United Nations General Assembly is scheduled to adopt a new agenda to succeed the Millennium Development Goals, which will include targets on tackling inequality.
On its own, addressing inequality through changes to tax systems will likely take a long time, especially in the US, according to London-based Tina Fordham, chief global political analyst at Citigroup Inc.
“Changing the tax code is a slow process, and in the US, is continually discussed but ultimately not carried out,” she said. “It is not very easy, politically, to challenge the status quo.”
Enda Curran & Simon Kennedy | Bloomberg
Image credits: AP/Mark Humphrey