Falling between the income gaps
In the preface to a study titled ‘In it Together’, the secretary general of the Organisation for Cooperation and Economic Development (OECD) remarked, “We have reached a tipping point. Inequality can no longer be treated as an afterthought. We need to focus the debate on how the benefits of growth are distributed. There doesn’t have to be a trade-off between growth and equality. On the contrary, the opening up of opportunity can spur stronger economic performance and improve living standards across the board”.
Similar assertions have been made by the International Monetary Fund (IMF), the World Bank and the European Commission. Clearly something is afoot.
Since the late 1930s, the trend in the distribution of income in the US and Europe has shifted in a positive direction, with the poorest 50% increasing their share of national income. This trend continued until around 1980. Since then, there has been a consistent rise in inequality, with a noticeable decrease in the share of income for the bottom 50% in the US and a decline followed by stagnation in Europe.
In contrast, the wealthiest 10% have made steady gains to reach 45% of national income in the US and over 35% in Europe. In recent years, Malta has also experienced a worrisome rise in income inequality, as highlighted in a recent IMF Article IV Consultation report (2024).
According to experts in this field, governments need to take more decisive action. Economic policies aimed at boosting private sector economic growth alone will not be sufficient to bridge the gap. It is crucial for governments to take decisive action to tackle income inequality through targeted policies. It is vital to take into account the impacts of new technology such as artificial intelligence, globalisation, and various other factors that are constantly altering the economic landscape.
Taxes and spending programmes need to be fairer and more progressive. When making decisions, policymakers must consider creating a tax system that ensures higher income groups contribute a larger share of the government’s revenue. Regrettably, there is a growing tendency to favour taxes on expenditure over progressive tax systems when there is a need to increase tax revenue. A more balanced approach is necessary since with increased reliance on taxes on expenditure, lower income groups are hit the hardest. Simply put, the tax system has been moving backward over recent years.
An increased emphasis should be placed on programmes that support the lower and middle-income groups when it comes to public spending. It is essential to prioritise increasing access for lower-income individuals to quality education, healthcare, and other necessities for participating in society.
Most economists broadly agree on the direction mentioned above. But what can be done on a personal level? Should we mimic Pontius Pilate and absolve ourselves of responsibility, expecting someone else to address this unfortunate situation? We all possess unique abilities that can be utilised to help address the issue at hand.
American economist R.J. Gordon has introduced the concept of “socioeconomic decay” to explain the consequences of rising income and wealth inequality in society. This is exacerbating the lack of opportunities for a large portion of people in various economies. To reduce the impact, I suggest that individuals who are better off can back programmes aimed at preventing this socio-economic decline by assisting those at risk get back on their feet.
This is the scope of a recent pilot initiative undertaken by individuals concerned about societal dysfunction, who have established a Voluntary Solidarity Fund (VSF) to make a positive impact. There are two crucial components in VSF. One important aspect to consider is the realisation that society is approaching a critical juncture, requiring additional efforts, particularly from those who are better off.
Additionally, VSF backs charitable organisations that focus on offering sustainable solutions rather than just immediate assistance. While emergency aid is crucial, VSF aims to extend its reach further for those who are struggling, feeling left out, or slipping through the cracks in society. With the right support, they can regain their place in society with dignity.
This project has sparked the imagination and garnered the support of several individuals throughout Europe. VSF is currently running pilot projects in London, Madrid, Turin, and Malta. It has raised over €250,000 in the past few years to support various programmes for individuals affected by domestic violence, former prisoners, pregnant young women, scholarships for further education, including refugees, and more.
Despite the generosity of many, the trends in inequality clearly indicate that more efforts are needed to support the less fortunate. A more regular and consistent support is needed, perhaps around one per cent of the income of those who are better off – who are not struggling to survive – to assist those less fortunate in getting back on their feet. Several businesses, people and workers are already engaged in this practice.
Voluntary Solidarity Fund is a young organisation that requires the backing of individuals who share concerns about those hit by lack of opportunities and who can be helped to get back on their feet and contribute to society in a dignified way.
For further information visit http:// thevsfinternational.org and vsfmalta.org
Josef Bonnici is president of VSF international and VSF Malta.