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SECTION 1 2 3 WHAT CAN BE DONE Data from 40 countries shows the potential of well-designed redistributive taxation and corresponding investment by governments to reduce income inequality driven by market conditions. 365 Finland and Austria, for instance, have halved income inequality thanks to progressive and effective taxation accompanied by wise social spending. FIGURE 12: Gini coefficient (income) before and after taxes and transfers in OECD and Latin American and the Caribbean (LAC) countries (2010) 366 Percentage variation Before taxes and transfers After taxes and transfers Peru Bolivia Mexico South Korea LAC average Brazil Argentina Uruguay Switzerland USA Israel Canada New Zealand Australia The Netherlands Spain Japan Estonia Poland Portugal UK Italy OECD average Greece France Iceland Sweden Luxemburg Norway Slovakia Germany Denmark Ireland Czech Republic Austria Belgium Slovenia Finland -60 -40 -20 0 0 20 40 60 Reduction in inequality (%) Gini coefficient before and after taxes and transfers Badly designed tax systems, on the other hand, exacerbate inequality. When the most prosperous enjoy low rates and exemptions and can take advantage of tax loopholes, and when the ri chest can hide their money in overseas tax havens, huge holes are left in national budgets that must be filled by the rest of us, redistributing wealth upwards. 82
SECTION 1 2 3 WHAT CAN BE DONE International tax experts, and standard-setters like the OECD and IMF, acknowledge the damage caused by exemptions, loopholes and tax havens, 367 but their commitment to solutions does not match the scale of the problem. Powerful corporations and national and global elites have connived to make international and national tax systems increasingly unfair, thus worsening inequality. THE LOW ROAD: THE GREAT TAX FAILURE All countries, whether rich or poor, are united in their need for tax revenue to fund the services, infrastructure and ‘public goods’ that benefit all of society. But tax systems in developing economies – where public spending and redistribution are particularly crucial to lift people out of poverty – tend to be the most regressive, often penalizing the poor. 368 The poorest 20 percent of Nicaraguans pay 31 percent of their income in tax, while the richest 20 percent contribute less than 13 percent. 369 Indirect taxes like the Value Added Tax (VAT), that fall disproportionately on the poor make up, on average, 43 percent of total tax revenues in the Middle East and North Africa, and up to 67 percent in sub‐Saharan Africa. 370 “ There are no politicians who speak for us. This is not just about bus fares any more. We pay high taxes and we are a rich country, but we can’t see this in our schools, hospitals and roads. JAMAIME SCHMITT BRAZILIAN PROTESTOR 371 CASE STUDY THE UNEQUAL TAX BURDEN IN THE DOMINICAN REPUBLIC “ Bernarda Paniagua Santana in front of her business in Villa Eloisa de las Cañitas, Dominican Republic (2014). Photo: Pablo Tosco/Oxfam Bernarda Paniagua sells cheeses and other products in Villa Eloisa de las Cañitas, one of the poorest and most under-served areas of the Dominican Republic. Victor Rojas is the manager of a prestigious company; he lives in one of the wealthiest areas of the country. Bernarda pays a greater proportion of her income in direct taxes than Victor because the rate of income tax in the country is almost entirely flat. Children in Victor’s neighbourhood lack for nothing: they receive the best education on offer and have a doctor visiting the house at the first sign of a fever. In contrast, Bernarda’s oldest daughter, Karynely finished high school four years ago and now helps Bernarda sell cheeses. She is unable to continue studying or find a good job because she lacks the necessary IT skills, as there weren’t any computers at her school. 83
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