Syllabus
GS-3: Inclusive growth and issues arising from it.
Context:
According to a report commissioned by the South African Presidency of the G20, global inequality has reached “emergency” levels, threatening democracy, economic stability, and progress on climate change.
More on the News
- The report was prepared by the G20 Extraordinary Committee of Independent Experts on Global Inequality, which was led by Nobel Prize-winning economist Joseph Stiglitz.
- The report, while highlighting the emergency levels of global inequality, recommends setting up a body called the International Panel on Inequality (IPI).
Key Findings of the Report
India-specific Findings: The report found that India’s richest 1% expanded its wealth by 62% between 2000 to 2023.
Global Findings:
- Overall, 83% of countries (covering nearly 90% of the world’s population) have high income inequality (having a Gini coefficient above 0.4).
- Globally, income inequality between all individuals in the world has fallen since 2000, due largely to economic development in China. However, it remains very high, at a Gini coefficient of 0.61.
- Globally, between 2000 and 2024, the richest 1% have captured about 41% of all newly generated wealth, whereas the poorest 50% received just 1%.
Social and Economic Consequences:
- One in four people globally (2.3 billion) face moderate or severe food insecurity, i.e., having to regularly skip meals, which is up by 335 million since 2019.
- Half the world’s population is still not covered by essential health services, with 1.3 billion people impoverished by out-of-pocket health spending.
- Countries with high inequality are estimated to be seven times more likely to experience institutional and democratic erosion compared to nations with more equitable wealth distribution.
Drivers of Inequality:
- Global shocks (COVID-19 pandemic, Ukraine conflict, energy-price volatility) disproportionately hurt low-income households.
- Regressive tax structures, labour-market deregulation, and weak data systems hinder effective redistribution and monitoring.
Key Recommendations
The Report calls for establishing a new body, called ‘International Panel on Inequality (IPI)’, modelled on the Intergovernmental Panel on Climate Change (IPCC), to support governments and multilateral agencies with authoritative assessments and analyses of inequality.
The Report calls for implementing several progressive fiscal measures, including:
- Wealth and inheritance taxes (as globally, billionaires pay an effective tax rate equivalent to only 0.3% of their wealth, contrasting markedly with the minimum 2% tax rate discussed by the G20 in 2024)
- Minimum effective corporate tax rates and curbs on tax havens.
- Removal of regressive subsidies and tax loopholes that favour the ultra-rich.
Learning from the OECD negotiations on the ‘Base Erosion and Profit Shifting’ (BEPS), the ongoing negotiations at the UN towards a Framework Convention on International Tax Cooperation provide a historic chance to reform international tax governance comprehensively.