Tax elite to re­duce in­equal­ity

The Pak Banker - - OPINION - Puja Mehra

FRENCH econ­o­mist Thomas Piketty says he hopes the In­dian elite will pay more taxes on wealth and in­come, as the coun­try's tax-to-GDP ra­tio of less than 11 per cent is in­suf­fi­cient to meet its chal­lenges of in­equal­i­ties. The aim should be to evolve the ra­tio to­wards 30-50 per cent, as in the U.S. and west Euro­pean coun­tries.

"In­dia has zero wealth tax… I hope the In­dian elite will be­have much more re­spon­si­bly [in pay­ing more taxes] than the western elite did in the 20th cen­tury," he told The Hindu in an in­ter­view. Draw­ing a com­par­i­son with China, the au­thor of the best-seller Cap­i­tal in the Twen­tyFirst Cen­tury said: "The Chi­nese Com­mu­nist Party has been much more suc­cess­ful than the demo­cratic and par­lia­men­tary In­dian elites in mo­bil­is­ing sig­nif­i­cant re­sources to fi­nance a strat­egy of so­cial in­vest­ment and pub­lic ser­vices." In­dia's pub­lic health sys­tem has a bud­get of barely 0.5 per cent of GDP, com­pared with al­most 3 per cent in China.

His ob­ser­va­tions fol­low new re­search - based on the World Bank's poverty data - that show the bur­den of cut­ting global in­equal­ity now rests largely on In­dia as China has been suc­cess­ful in do­ing it. At the same time, the Modi govern­ment has an­nounced its in­ten­tion of re­duc­ing the rate of tax­a­tion of cor­po­rate in­comes to 25 per cent (with cor­re­spond­ing with­drawals of ex­emp­tions), which is lower than in rich coun­tries.

Mr. Piketty, whose book trans­formed the un­der­stand­ing of the his- tory of wealth and its dis­tri­bu­tion, said for In­dia to meet its huge chal­lenges of in­equal­i­ties the elite would have to start pay­ing more taxes. The cur­rent tax-to-GDP ra­tio - of be­tween 10 per cent and 11 per cent - is in­suf­fi­cient for meet­ing In­dia's huge chal­lenges of in­equal­i­ties, the French econ­o­mist said. The aim should be to evolve the ra­tio to­ward the 30 per cent to 50 per cent lev­els now seen in the U.S. and some of the West Euro­pean coun­tries.

"I hope In­dian elite will be­have much more re­spon­si­bly than the western elite did in the 20th centu- ry…. True re­forms are yet to come in the pub­lic fund­ing of the education sys­tem and im­prove­ment in the trans­parency in the tax col­lec­tion sys­tem has not hap­pened yet," Mr. Piketty said in an ex­clu­sive in­ter­view to The Hindu on Thurs­day. He was in Delhi to de­liver a lecture on In­equal­ity and Cap­i­tal­ism.

Com­mu­nist China has fared bet­ter than In­dia at col­lect­ing taxes from the elite which is ev­i­dent from the stark dif­fer­ence in the pub­lic spend­ing be­tween the two coun­tries for in­stance, on health, he said. The pub­lic health sys­tem in In­dia has a budg- et of less than one per cent of GDP as com­pared with al­most three per cent in China. "The Chi­nese Com­mu­nist Party has been much more suc­cess­ful than the demo­cratic and par­lia­men­tary In­dian elites in mo­bil­is­ing re­sources to fi­nance so­cial in­vest­ment and pub­lic ser­vices."

Mr. Piketty's doc­u­men­ta­tion of the evo­lu­tion of in­come and wealth over the past 300 years in the rich coun­tries shows that from about 1914 to the 1970s there was an his­tor­i­cal out­lier in which both in­come in­equal­ity and the stock of wealth (rel­a­tive to GDP) fell dra­mat­i­cally.

This was on ac­count of the political shocks and be­cause of an in­crease in tax rates in the rich coun­tries in re­sponse to the world wars. Since the 1970s both wealth and in­come gaps were ris­ing to­ward their pre-20th-cen­tury norms, he said. Be­tween 1980 and 2007, 70 per cent of the ad­di­tion to gross do­mes­tic prod­uct, es­pe­cially in the rich coun­tries, went to the top 10 per cent of the "elite" pop­u­la­tion. In con­trast, the per capita in­comes rose just about 1.5 per cent a year.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.