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EDITORIAL: Income inequality threatens society
It is again the time of year for tax returns. This year, the government is optimistic that national tax revenue may achieve its target of NT$1.866 trillion (US$61.76 billion), after tax revenue in the first quarter increased 7.3 percent from a year earlier and was 3 percent higher than the government’s estimate for the quarter.
Tax revenue is likely to increase further next year amid a recovering economy this year and the figure could climb even higher in 2016 on the back of the government’s plans to increase taxes on high-income earners and financial institutes.
On Thursday, the legislature’s Finance Committee approved a preliminary review of a bill to raise the business tax rate on banks and insurance companies from 2 percent to 5 percent, as well as create a new income tax bracket with a marginal tax rate of 45 percent for those with a net income of NT$10 million or more a year. If the bill passes further reviews to become law later this year, the new tax rates will take effect on Jan. 1 next year.
The planned tax increases are part of a fiscal reform package unveiled by the Ministry of Finance in late February and could be one of the biggest tax hikes in the nation in recent decades. Based on the ministry’s estimates, the whole reform package could boost national tax revenue by NT$63.3 billion a year, equivalent to 0.41 percent of GDP last year.
It goes without saying that the government is taking the right decision tackling the nation’s deteriorating fiscal situation. After all, the central government’s debt level has risen rapidly, from 30 percent of average GDP for the three years previous to 2008 to an estimated 38.6 percent this year and is likely to approach the debt ceiling of 40.6 percent next year at the earliest, based on the speed of debt growth.
Since the debt ratio could exceed the debt ceiling from 2016 if economic growth stays below 4 percent, the government has no choice but to take action to deal with its deteriorating finances.
This is just the beginning of a possibly lengthy reform process the nation has to face. Besides fiscal difficulties, the nation is also experiencing rising income inequality, especially as higher home prices and stagnant wages in recent years have aggravated this problem. Make no mistake, the rising wealth gap will be a defining element in any wrangling over the nation’s future and is one of the driving forces behind recent social movements.
There is a legitimate role for government to play in solving the problem of economic inequality. One essential point is that extreme economic disparity could lead to a breakdown of social cohesion and create an increasingly stratified society. No matter how unsympathetic the government has been toward the demands of the public — and for whatever reason the finance ministry has this year decided to stop releasing statistics on the ratio between the highest and lowest-income groups based on data of the annual consolidated income tax declaration — it should worry anyone who cares about our economic and social system if rising inequality appears to intimidate our development model or impede the nation’s progress.
In his controversial new book, Capital in the Twenty-First Century, French economist Thomas Piketty says inequality is a tendency in capitalist economies, especially at times of low economic growth and if the situation continues, it is likely to have a harmful effect on the democratic values of justice and fairness. The solution to growing inequality, he says, is a progressive tax on net wealth, with the proceeds from such a levy redistributed to those with less capital, rather than handed to an inefficient government.
Piketty may be too idealistic and his prescriptions will not be music to the government’s ears, but his remarks certainly echo people’s growing concerns about income disparity and the expanding wealth gap in this nation.
source: Taipei Times
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