Turn the Tide

The G20 must act on rising inequality, starting with fairer global tax reform

Publication date: 11 November 2014

The gap between the rich and the rest is extreme and growing. G20 nations are not immune.

In the time that Australia has held the G20 Presidency (between 2013 and 2014) the total wealth in the G20 increased by $17 trillion but the richest 1 percent of people in the G20 captured a staggering $6.2 trillion of this wealth – 36 percent of the total increase. This is because, in the vast majority of G20 countries, the richest 1 percent of people took an even bigger share of the economic pie in the past year. Yet G20 countries are still home to more than half of the world’s people living in poverty.The G20 cannot afford to ignore the problem of inequality.

These same problems exist around the world, with seven in 10 people living in countries where inequality is worse than it was 30 years ago,ivand a billion people still living in extreme poverty. Extreme inequality is also preventing millions of people from lifting themselves out of poverty,vcausing a vicious cycle that must be broken.

A vivid example of the role of growing social and economic inequalities is the Ebola crisis. The virus is tearing through West Africa because countries don’t have the public health infrastructure to stop it. G20 leaders need to swiftly ensure all the personnel, equipment and funding required to halt the outbreak are made available, as outlined by the Framework for a Global Response to the Ebola Outbreak.

In spite of the inequality explosion and its harmful effects, G20 countries are pursuing growth strategies that are too narrowly focused on increasing GDP rather than targeting the fairer distribution of growth that would reduce inequality and imrove the lives of the poorest people, as well as the wealthy. G20 countries represent around 90% of global gross national product and 80% of world trade, giving them unrivalled policy influence over their own countries and others. Their decisions directly affect the poorest countries. The G20 must live up to its commitment to promote inclusive growth, which requires prioritizing strategies that will close the gap between the poorest 40 percent of people and the wealthiest.

High on the G20 agenda, and essential to solving the problem of inequality, is a review of global rules to tax multinational corporations, through the G20/OECD Base Erosion and Profit Shifting (BEPS) process. Australian Treasurer Joe Hockey has said that ‘tax evasion and avoidance is a global problem and the effects are sometimes felt hardest by the poorest people in the poorest countries’.

Oxfam shares these concerns: Our research shows that developing countries could be losing more than US $100 billion every year because of corporate tax dodging and tax breaks for corporations. This would be almost enough to get every child into school four times over.

Oxfam welcomes progress made on global corporate tax reform, but the BEPS process is not sufficient to deal with the global tax issues developing countries face, or to address all of the fundamental problems that currently allow multinational corporations to get away with not paying their fair share of tax.

The G20 must be willing to go beyond the OECD-led Base Erosion and Profit Shifting (BEPS) plans, and work with all countries to fundamentally re-write global tax rules, tackling the tough issues that especially matter to developing countries such as source versus residence taxation, tax competition, and ‘spillover’ effects. Merely tinkering around the edges of the fundamental reforms required is not enough.

The G20 needs to show it is serious about tackling inequality by returning to its commitment to inclusive growth, and by committing to go beyond existing tax reform plans so that the tax system works for the majority, rather than privileging large multinational corporations and the richest countries.