In its half-yearly financial report, the International Monetary Fund said taxing the super-rich would help reduce inequality without having an adverse impact on growth.
What is good for the super-rich is not so good for the rest of us, the IMF has concluded in a significant report that
challenges decades of neo-liberal economic policies.
The IMF rejected the argument that economic growth would suffer if governments in advanced countries forced the top 1 per cent of earners to pay more tax.
Responding to the argument that putting “significantly higher” tax rates on high incomes would be bad for growth the IMF said: “Empirical evidence does not support this argument”.
The head of the IMF’s fiscal affairs unit, Vitor Gaspar, said the average top income tax rate for the rich country members of the OECD (including Australia) had fallen from 62 per cent in 1981 to 35 per cent in 2015.
He said there was scope for more progressive systems to tax the rich at higher rates in an effort to redistribute income to those who are less well off.
“Importantly we find that some advanced economies can increase progressivity without hampering growth,” he said.
“While some inequality is inevitable in a market-based economic system, excessive inequality can erode social cohesion, lead to political polarisation, and ultimately lower economic growth.”
Investment in health also reduces inequality
The IMF said inequality should also be tackled by giving a more pro-poor slant to public spending.
“Despite progress, gaps in access to quality education and healthcare services between different income groups in the population remain in many countries,” it said.
“Investments in education and health help reduce income inequality over the medium term, address persistent poverty across generations, enhance social mobility, and ultimately promote sustainable and inclusive growth.
“Better public spending can help, for instance, by reallocating education or health spending from the rich to the poor while keeping total public education or health spending unchanged.”
ACTU calls for end to corporate tax cuts
The ACTU said the IMF report highlighted the failure of trickle-down economics.
“The Turnbull government’s policies of cutting taxes for the very wealthy and big business are making inequality worse. The IMF report shows that this approach has failed,” said ACTU Secretary Sally McManus.
“The rich have not put limits on their greed and given wage increases and good steady jobs back to everyone else. We now have record low-wage growth, inequality at a 70-year high and 40 per cent of Australians are in insecure work.
“We need corporations and the already rich to actually pay tax.”
Australia’s tax rules aren’t working
In 2014–15 the top 10 companies in Australia that paid no tax at all had combined revenue of $33 billion.
In a single year between these 10 companies we have lost more than $660 million in taxes.
On top of this the Tax Office is currently suing American oil and gas giant Chevron for more than $1 billion in unpaid taxes dating back to 2012.
In 2014–15, 48 Australian millionaires paid no tax – not even the Medicare levy. Nineteen spent over $1 million each on lawyers and accountants to “manage their tax affairs”.
And now the government wants to give more special treatment to business with an extra $65 billion tax cut. This corporate handout would reduce the tax rate from 30 per cent to 25 per cent.
The Commonwealth Bank stands to benefit by $1 billion. Our biggest miners BHP, Rio Tinto and Woodside will share in $1.8 billion. Coles and Woolworths will share in $281 million.
Read more about the IMF’s take on tackling inequality:
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