Fiscal Justice to Address Inequality

Commentary 24 February 2019

IF people have the space, voice, and agency to exercise their rights and use this to influence and monitor fiscal systems, then they will have the power to mobilise greater revenue and increase spending for quality public services. This is what is referred to as fiscal justice. Global experience demonstrates that fiscal policies, i.e., government policies on taxation and public spending can be among the best tools to fight against extreme economic inequality. A truly ‘progressive fiscal system’ (progressive taxation and pro-poor public spending) redistributes resources and power towards those who are the most excluded and marginalized; and, in turn, it can restrain inequality. At the same time, the revenue thus generated can fund the much needed public services that in turn play a critical role in correcting historical injustices and bringing about increased social equality. This investment, furthermore, fuels a virtuous cycle where stronger investment in human capital leads to greater economic and social progress.

Unfortunately, India’s taxation system is regressive due to heavy reliance on indirect taxes. A regressive tax regime is one where an equal amount of tax is borne by the rich and poor; indirect taxes like Value Added Tax (VAT) that are charged equally to anyone making a purchase to obtain a certain amount goods and services are said to be regressive. In 2016-17, 68% of total tax revenues (centre & states combined) was collected from Indirect Taxes, which clearly shows India’s dependence on indirect taxes. (Indian Public Finance Statistics 2016-17) The newly reformed Goods and Services Tax (GST), which subsumes most indirect taxes is regressive and risks further fuelling inequality.

In contrast, personal income tax in India is considered as progressive; but, only a tiny fraction of workforce comes under this. The biggest share of direct tax revenue is corporate taxation. However, if we compare it globally, India’s rate is moderate (34.61% compared to a global average of 23.62%). The effective corporate rate, however, taking exemptions into consideration is only 26.87%. (Corporate Tax Exemptions, Working Paper, OIN https://www.oxfamindia.org/sites/default/files/2018- 10/Corporate%20Tax%20Exemptions.pdf)

Despite this already low tax rate, corporates are lobbying for further reductions. The government appears inclined towards that direction, albeit accompanied by phasing out of exemptions. If tax exemption and cut in the tax rates are not manoeuvred properly, it would lead to accumulation of more private wealth. This may worsen inequality in India. These exemptions are particularly unfortunate given that India’s overall tax revenue is low, reflected in low tax GDP ratio, which means that India has limited resources for providing important public services and expanding the social protection net. Apart from corporate tax, there is a strong case to introduce progressive taxation measures like the wealth tax and inheritance tax that have the potential to not only generate revenues for the government but also to arrest growing income inequality in the country.

Cracking Down on Corruption

Tackling corruption is central to achieving universal public services and social protection.

Corruption impacts inequality in different ways. As the most basic level, the poorest people are more likely to have to pay bribes. In India, Transparency International data shows that India’s ranking slid to 81 among a group of 180 countries. The Corruption Perception Index 2017 also singled out India as one of the ‘worst offenders’ in the Asia-Pacific region. The index measures perception of corruption in the public sector. India’s score remained intact at 40 points in both 2016 and 2017; it is below the global average of 43. Transparency International found that crackdowns on non-governmental organisations (NGOs) and media were associated with higher levels of corruption in the world. (https://www.transparency.org/country/IND#)

The 2018 CMS-India Corruption Study found that 75% households have the perception that the level of corruption in public services has either increased or remained same during the last 12 months. Further, perception about Union government’s commitment to reduce corruption in public services has seen a decline from 41% in 2017 to 31% in 2018. (http://cmsindia.org/cms_ics18/CMS_ICS_2018_Report.pdf)

Healthcare in India

IN India, the highest-quality medical care is only available to those who have the money to pay for it. The country is a top destination for medical tourism. At the same time, levels of public spending on health are some of the lowest in the world. The poorest Indian states have infant mortality rates higher than those in sub-Saharan Africa. India is home to the largest number of people pushed into poverty by health expenses; paying for medicines is the chief cause.

Oxfam Director Winnie Byanyima at World Economic Forum, Davos

WE have a tax system that leaks so much, which allows a 170 billion dollars to be taken every year to tax havens, and be denied the developing countries which need it the most.

The gentleman who just spoke said jobs are there and unemployment rates are low and poverty has reduced. But the quality of those jobs? We work with poultry farmers in the richest country in the world, the United States of America - women who chop and package the chicken that is sold at supermarkets. Dolores, one of the women we work with, told us that she and her co-workers have to wear diapers to work because they’re not allowed toilet breaks. In the richest country in the world! That’s not a dignified job!

These are the jobs we’re told globalisation is bringing - but the quality of the jobs matter! These aren’t jobs of dignity. In many countries, workers no longer have a voice, they are not allowed to unionise, they’re not allowed to negotiate for salaries. 3.4 billion people who earn $5.50 a day are just a medical bill, a crop failure away from sinking back into poverty. So don’t tell me about low levels of unemployment. You are counting the wrong thing, you are not counting dignity, you’re counting exploited people.

Historian Rutger Bregman At World Economic Forum, Davos

I hear people talking the language of participation and justice and equality and transparency but then almost no one raises the real issue of tax avoidance and of the rich just not paying their fair share. It feels like I’m at a firefighters’ conference and no one’s allowed to speak about water! Stop talking about philanthropy and start talking about taxes, taxes, taxes. A billionaire asked here, ‘name me one country where a marginal top tax rate of 70% has actually worked.’ The United States, that’s where it has actually worked, in the 1950s, when the top marginal tax rate was 91%.

NSSO Data Shows Unemployment Worst in 45 Years

MODI'S 2019 slogan is ‘Namumkin Ab Mumkin Hai’ (The Impossible Is Now Possible). Well, whoever thought unemployment levels in 2018 could reach the worst levels in 45 years? Modi has made that possible. NSSO data that the Government tried to suppress and then deny, found that unemployment is at a 45-year high. Unemployment rates have jumped from around 2-2.5 per cent, to above 6 per cent. Unemployment is worst for young men and women between 15-29 years of age: 13-17 out of every 100 rural youth, and 18-27 out of every 100 urban youth are unemployed. 52 lakh jobs were terminated between 2013-14 and 2015-16; for the first time after Independence that there has been a drop in the total number of jobs; there are 24 lakh pending recruitments and massive cuts in Government posts.

State of Working India 2018

(Some key findings from Centre From Sustainable Employment, Azim Premji University)

GROWTH creates fewer jobs than it used to. A 10 per cent increase in GDP now results in less than 1 per cent increase in employment.

1. A new feature of the economy is a high rate of open unemployment, which is now over 5 per cent overall, and a much higher 16 per cent for youth and the higher educated.

2. 82 per cent of male and 92 per cent of female workers earn less than ₹10,000 a month. the minimum salary recommended by the Seventh Central Pay Commission (CPC) is ₹18,000 per month. This suggests that a large majority of Indians are not being paid what may be termed a living wage, and it explains the intense hunger for government jobs

A field study in West Bengal shows that even multiple informal occupations do not fetch women a living wage. For example, one woman undertook tailoring, brick kiln work, daily labour, and mid-day meal cooking to earn ₹2700 a month while another performed brick kiln work, daily labour, sand mining, and agricultural work to earn ₹6800. Another study in Rajasthan shows that skilled stone cutters earn significantly less than the already low state minimum wage, for highly hazardous work in an export-oriented industry.

3. The share of contract work and other precarious forms of labour have grown since the early 2000s. Field studies reveal many categories of contract, trainee, and apprentice workers who perform the work of permanent workers at a fraction of their wages. This is one way in which labour laws are being circumvented by manufacturing firms. Another way is via under- reporting of workers.

4. Labour productivity in organised manufacturing increased by six times over the past three decades but wages increased by only 1.5 times.

5. Women are 16 per cent of all service sector workers but 60 per cent of domestic workers. Overall women earn 65 per cent of men’s earnings. Programmes such as MGNREGA, anganwadis, ASHA, and so on have played a crucial role in increasing women’s participation in the paid workforce. Field studies suggest that lack of available work, rather than social restrictions, may be preventing women from entering the labour force.

6. Scheduled castes are 18.5 per cent of all workers but 46 per cent of leather workers. The caste earnings gap is larger than the gender earnings gap. SCs earn only 56 per cent of upper-caste earnings. The figure is 55 per cent for STs and 72 per cent for OBCs.

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