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Frederick Johnstone looks at the wealth inequality issue, pondering what action can be taken to even out the crooked world economy.
Income inequality has been an issue for many years. An equally significant threat, however, is differences in wealth. Why is wealth inequality just as significant? Consider this example: Tommy and Danny both have an income of $40,000 per year, but Tommy has a net worth of $1 million, and Danny has a net worth of $0. Here we have no income inequality, but Tommy flourishes while Danny struggles to survive. This is a very simple illustration of why differences in wealth are just as important as income discrepancies in society.
Earlier this month, the financial services firm Credit Suisse published a study that confirmed a worrying trend: the top 1 percent of the world’s wealth holders own just over half of the world’s wealth – while the richest 10 percent own 87.7 percent.
Putting the situation into perspective, a person needs only $3,210 (US dollars) to be in the wealthiest 50 percent of world citizens. At the other end of the scale, the number of millionaires sits at 34 million, and the number of millionaires is set to grow in the next five years to 49.3 million people.
The study also showed that China’s middle class has grown larger than that of the United States (109 million compared to 92 million). “Wealth is still predominantly concentrated in Europe and the United States. However … a fivefold rise in China since the beginning of the century,” reported Credit Suisse’s chief executive Tidjane Thiam. China now holds 10 per cent of the world’s wealth, while accounting for a fifth of the global population.
There are those who are attempting to address this – the World Economic Forum in Davos, Switzerland at the start of the year was arguably the biggest stage to shine the spotlight. Attended by the global elite from politics and business, the annual meeting is aimed at addressing global economic issues.
The theme for this year’s event was “new global context.” Discussed were matters such as the slowdown of global growth and climate change. Inequality was also addressed, and executive director of Oxfam, Winnie Byanyima, was one of the co-chairs of the forum, giving marginal prominence to the issue. She proposed that companies stop lobbying to rather contribute towards medicine to prevent thousands of deaths in the developing world. In the United States alone, during 2013, $400 million was spent lobbying political decision-makers to shape the market in the favour of businesses. If this proposition were practised, the concentration of wealth would not be as commonplace as it stands.
It begs the question: why should it be the responsibility of charities and NGOs to address? Should it not be a priority for the governments of developed countries? If we look towards the action taken by the Australian Government in recent times, they believe it’s not a problem worth attending to.
The Federal Government had a chance to address this issue earlier in the year, with its white paper on the country’s tax system. Tony Abbott stated that there would be a “comprehensive and inclusive” review of the tax system in April. The 196-page document, however, found little room to implement the most effective means of addressing wealth inequality. Unlike other developed countries, Australia has no inheritance tax or gift duties, and the issue is only given two paragraphs. “These taxes generate relatively little revenue,” it says. “…such taxes can be difficult to administer effectively.”
Furthermore, superannuation is taxed at a concessional rate that delivers the most benefit to high-income earners. A question from the discussion paper reads, “Is the size of the capital gains tax discount still appropriate?” The 50 percent discount that exists on the CGT, along with negative gearing, makes investment housing an attractive option, particularly for those who hold vast sums of wealth. One hopes the green paper’s release in the near future brings a response to the CGT at the very least.
As inequality has no surefire solution, the disturbing trend points to the fact that it will become enhanced in the future. The inaction of the Australian Government, and of those in the developed world, will only exacerbate the problem. While it’s encouraging that inequality gains attention in front of the world’s bigwigs at Davos, it’s a theory that will stay in words, and the conversation may remain unanswered.
Arguably, the change that society will have to undergo is too much to lose from gaining equality.