A billion reasons to change

The world’s 10 richest men have doubled their wealth since March 2020. Let that sink in for a moment. This is according to the latest report on global inequality by charity Oxfam, which usually releases such findings ahead of the World Economic Forum meeting in Davos, Switzerland.

While the data is slightly skewed by Oxfam’s decision to start measuring the data from the start of the pandemic, when global share prices took a big hit, the findings nevertheless make for sober reading.

“Even during a global crisis our unfair economic systems manage to deliver eye-watering windfalls for the wealthiest but fail to protect the poorest,” Oxfam’s Chief Executive Danny Sriskandarajah was quoted as saying, and it’s a hard point to argue against.

While the collective fortune of the 10 richest grew from $ 700 billion to $ 1.5 trillion between March 2020 and November 2021, some 160 million more people are now said to be living on less than $ 5.50 a day than would have been without the impact of the COVID pandemic.

To put it another way, billionaire fortunes have doubled since the start of the pandemic, while 160 million other people have fallen below the poverty line. The charity said tax rates for the rich and corporations had been cut in recent decades. And when governments fail to tax the wealthy, they pass the tax burden on to poor people through consumer levies like value added tax. The report also said governments are increasingly underfunding public services and failing to clamp down on tax dodging.

Sri Lanka is not immune to this issue. Despite constant complaints, Sri Lanka still collects over 80% of its taxes indirectly, which puts a disproportionate amount of pressure on the poor. Even though poverty rates have declined, inequality, especially when it comes to household incomes have increased over time. The solution is not to reduce taxes as investment in public services is important, but the quota of direct taxes needs to be implemented competently and connected to growth strategies that will increase the overall GDP as well.   

This is not an easy task, as income inequality in Sri Lanka is high and has remained more or less unchanged, for more than three decades. While the share of household income of the poorest percentile has remained less than 2%, the corresponding share of the richest group has remained around 38% throughout the period from 1990/91 to 2012/13.

The Gini coefficient for household income, which is one of the key measures of inequality, increased from 0.43 in 1990/91 to 0.49 in 2006/07 and remained unchanged at around 0.48, thereafter. The increase in income inequality does not necessarily mean that the poor are getting poorer and rich are getting richer. It is rather, the rich getting richer, at a faster rate. This is also because a large percentage of Sri Lanka’s vulnerable community rely on agriculture for their livelihoods while the richer are engaged in services, which are better paid and provide a more sustainable income.

In Sri Lanka agriculture provides only 7% of GDP but it employs as much as 27% of the population. This means when weather is erratic and harvests fail there is an immediate and severe impact on the public – the recent push towards organic fertiliser has only exacerbated matters. As there are fewer employment options for this segment, the spillover effects are marked. This is also the reason why successive governments drift towards populist policies when elections come around. There is a clear link between agriculture, income inequality and policy making but turning around this trend is extremely difficult.

Tackling corruption is the other side of the coin and on this the Government has been lackadaisical at best. Reducing corruption and improving tax collection is an important step in reducing income inequality. In fact, this could be the definition of development.