(MENAFN- Gulf Times) 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 healthcare and social security programmes 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 labour strikes.
"I wouldn't be surprised if we see more of this," said Shang Jin Wei, chief economist at the Asian Development Bank in Manila. "Thomas Piketty's book inspired interest into looking into this issue and therefore increasing taxes is partly a response to that."
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. It is also seeking to increase the transfer duty on expensive houses. 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 favours the wealthy by not taxing capital gains or inheritance.
"China's tax system is more favourable to the rich than America's tax system," he said. "Over time I expect China to adjust its tax system towards 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%. China's gross domestic product grew by an average of around 10% 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.
The global debate on the socio-economic disparities may be gaining steam. This month, Group of 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. It came after the Organisation for Economic Cooperation and Development calculated that the gap between rich and poor is at its highest level in more than three decades.
Industrial nations are also paying heed. In the US, President Barack Obama is increasingly viewing tax policy as a way to finance breaks for education and child care and to fight middle-class wage stagnation. His latest proposals would raise taxes on Corps and the nation's top earners. With the UK general election just 10 weeks away, Ed Miliband, the leader of the opposition Labour Party, is pledging to restore a 50% tax rate for the highest earners and bring in a "mansion tax" on the most expensive homes.
Further political pressure may come later this year, when the UN General Assembly is scheduled to adopt a new agenda to succeed the Millennium Development Goals, which will include targets on tackling inequality. Governments may still fall short of what Piketty advocates.
In a recent blog for the London School of Economics, he reiterated that a worldwide levy on individual net worth "would offer the best solution to the world's spiralling levels of inequality." Even on the basis of what has been pitched, 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."
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