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Ireland's political and cultural magazine
22September/October 2015
A
REAL plan for reducing inequality is needed as
we approach Budget and this is what
Anthony Atkinson offers us in ‘Inequality:
What Can Be Done’.
Inequality is not inevitable, he states, and the proc-
ess of reversing the trend of growing inequality
requires political engagement and concrete steps. This
conclusion is based on decades of analysis of inequality
by Atkinson. It is rooted in his ambition to map out the
policy measures to start the process of reversing the
trend towards growing inequality and of narrowing the
income gap. This is not utopian as much of what is pro-
posed already exists in a number of Northern European
countries.
Atkinson defines the problem as not just being
about the rich getting richer, but also that we are fail-
ing to tackle poverty, while the economy continues to
change rapidly, and the majority are left behind.
Rising top incomes and stagnant low incomes are
partly caused by long-running trends such as globali-
sation and technological change. These trends and
their consequences can be altered by policy, Atkinson
argues.
Governments play an important role in shaping the
direction of technological change. The state, he says,
should be conscious of its role in the
innovation process and take account of its effects on
income distribution. The development of autonomous
driverless vehicles, for example, is currently being
undertaken by a number of global tech companies
including Apple and Google. Much of the research
behind this innovation is being sponsored by the US
government. This development may eliminate mil-
lions of jobs for less-skilled workers. However, if
workers had a stronger voice, state-sponsored
research could focus on creating factory technologies
that complement the skills of workers in the manu-
facturing sector.
Similarly, trends in globalisation, Atkinson argues,
are not inevitable but the result of decisions that are
taken. Talks on the Transatlantic Trade Investment
Partnership, for example, are on-going behind closed
doors and involve governments and corporations.
The voices of consumers and workers are largely
absent from these talks, but the impact of decisions
made will have a direct impact on the lives of millions
of workers and consumers. Such decisions are too
important to be dominated by the interests of corpo-
rations and their shareholders.
The increasing pace of technological change is
driving up demand for more skilled workers. How-
ever, the education system is not producing enough
Anthony Atkins’
book shows
inequality is a
decision, which
this government
perpetuates
Template for Equality in Budget 2016
SINÉAD PENTONY
September/October 2015 23
people with the required skills in the necessary num-
bers to keep up with demand. This is creating wage
inflation at the top. The obvious answer is to increase
investment in human capital, education and training.
But this won’t address income inequality on its own.
Atkinson defines income as including earnings,
income from capital (investments such as pensions)
and welfare; the sum of which is reduced by direct
taxation.
This means there are many forces in operation
with regard to increasing and decreasing the income
gap. These include the welfare
state and taxation; jobs and pay;
and the ownership and trans-
mission of wealth. These three
areas form the basis of fifteen
proposals from Atkinson to
start the process of reducing
income inequality.
In the area of welfare and tax-
ation, Atkinson proposes more
taxation and more public
expenditure. He points to the
post-World War II era and the
impact of high marginal rates of
taxation and of the creation of
the welfare state, in narrowing
the income gap.
In contrast, OECD research
highlights that from the mid-
s the reduced
redistributive capacity of tax-
benefit systems was sometimes
the main source of widening
household-income gaps.
Atkinson draws on earlier
research (see Chart ) to show
how the top marginal income tax rates have reduced
since , and the corresponding increasing
income share of the top %. In Ireland, the marginal
rate of tax has been reduced by approximately %
over this period and we are the third highest in terms
of the increasing share of income going to the top
% .
Proposals in this area include: increasing the
marginal rate of taxation, with a top rate of 65%;
increasing inheritance tax; introducing property
tax (where it doesn’t exist); substantially increas-
ing child benet and taxing it as income;
increasing social insurance or introducing a basic
income; and increasing Ocial Development
Assistance.
When considering Atkinson’s proposals in an Irish
context it is important to understand Ireland’s fiscal
policy as a low-tax and low-spend economy.
Chart illustrates the extent to which we differ
from other EU countries in this regard.
We know that Budget will include tax cuts in
the region of €m. This is likely to include reduc-
tions in the Universal Social Charge and increasing
the threshold before inheritance tax is applied. The
top marginal rate of tax was reduced from % to
% in Budget .
We are moving in the opposite direction from that recommended in Atkinson’s pro-
posals for reducing income inequality in terms of taxation and spending. This is a
political choice and not an economic necessity. The Nevin Economic Research Institute
states in its latest ‘Quarterly Economic Observer’ that “sustainable fiscal policy is as
consistent with high levels of revenue and spending as it is with low levels of revenue
and spending…”.
As to jobs and pay, Atkinson proposes: the adoption of an explicit target for reduc-
ing unemployment; oering guaranteed public employment; developing a national
pay policy with the minimum wage set at the Living Wage; and active policy-mak-
ing in the area of technological change. He recommends that the State becomes an
employer of last resort, in the same way that it is the ‘lender of last resort’.
Source: The Top 1% in International and Historical Perspectives. Facundo Alvaredo, Anthony B. Atkinson,
Thomas Piketty and Emmaneul Saez. Journal of Economic Perspectives – Volume 27, Number 3 –Summer
2013, Pages 3-20
Source: Quarterly Economic Facts. Summer 2015. Nevin Economic Research Institute.
Chart 1: Change in top income shares and top marginal income tax
rates since 1960
Chart 2: General Government expenditure and revenue, % GDP EU and
Rep. of Ireland 2003-2014
Source: Author’s own calculation based on data from CSO
Change in top marginal income tax rate (percentage points)
Elasticity = .47 (.11)
US
UK
Portugal
Ireland
Norway
Canada
Italy
Japan
NZ
Australia
Sweden
Denmark
Spain
Switzerland
France
Netherlands
Germany
Finland
Change in top 1% income share (percentage points)
10
8
6
4
2
0
-40 -30 -20 -10 0
10
Source: Author’s own calculation based on data from CSO
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
70
65
60
EU 28 Gov. Spending
EU 28 Gov. Revenue
Rep. Ireland Gov. Spending
Rep. Ireland Gov. Revenue
55
50
45
40
35
30
Trends in
globalisation,
Atkinson
argues, are
the result of
decisions that
are taken.
The voices of
consumers
and workers
are largely
absent from
TTIP talks, for
example
“
24September/October 2015
In Ireland, the unemployment rate currently stands at .%,
with a target to reduce this to .% by . While the unem-
ployment statistics are moving in the right direction, Ireland
still has one of the highest rates of jobless households in the EU,
with almost one quarter of household (%) falling under this
category.
The quality of the jobs is just as important. Policy needs to
reverse the growth in precarious work, including zero-hour con-
tracts and workers being forced to register themselves as being
self-employed to get work, when in fact they should be
employees.
According to the NESC Report, ‘Jobless Households: An Explo-
ration of the Issues ()’[, the emphasis on participation and
activation must extend beyond those on the Live Register and
those classified as long-term unemployed. Improved services
are required in the areas of adult literacy, child development,
family supports, addiction, disability, housing, education
and training, public employment and community employ-
ment. All of this requires significant public investment.
In the area of pay: Ireland’s recently increased minimum
wage of €9.15 falls far short of the Living Wage of €11.50.
However, the establishment
of a Low Pay Commission is
an important institutional
development. Closing the
income gap requires meas-
ures to reverse the trend of
top earners taking the grow-
ing portion of the income pie.
Over a year period (
– ) the top % share of
income has increased from
.% to .%, while the share
of the top % has increased
from .% to %.
In the area of ownership and
transmission of wealth, Atkin-
son’s proposals include:
creating a sovereign wealth
fund to build up the state’s
net worth – the establish-
ment of the Irish Strategic
Investment Fund is a modest start in this regard; introduc-
ing a distributional dimension into competition policy e.g.
taking account of the impact of mergers and acquisitions on
employment – Aer Lingus is a case in point; and putting a legal
framework in place that allows trade unions to represent work-
ers on equal terms in corporate decision-making.
In general, the relentless drive for profit maximisation is a key
feature of the ‘shareholder model’, which is the dominant corpo-
rate structure. There is a need for more democracy in public and
private enterprises.
A shift in decision-making power is needed from a small
minority of corporate shareholders, whose focus tends to be on
short-term profit maximisation, to a larger majority of public
and private stakeholders, who are more likely to take a balanced
and longer-term view of maintaining a viable business while also
taking other factors, such as employment and the environment
into consideration.
Taxation is the key mechanism through which wealth and
income is redistributed. Inheritance tax, capital gains tax and
taxing income from capital/wealth in the same way as earned
income all have a role to play. The introduction of a minimum effective tax
rate for wealthy individuals and large corporations in Budget would
be a step in the right direction towards narrowing the income gap and
improving the redistributional effectiveness of the tax system.
Anthony Atkinson’s book clearly demonstrates what can be done to
reduce income inequality. The Irish budget plays a key role in creating the
conditions for reducing or increasing income inequality. The choices made
will indicate the importance the government gives to equality and, so far, it
is not looking good when compared to Atkinson’s proposals. •
OPINION Sinéad Pentony
Increase the marginal
rate of taxation, with
a top rate of 65%;
increase inheritance tax;
introduce property tax
(where it doesn’t exist);
substantially increasing
child benefit and tax it as
income; increase social
insurance or introduce a
basic income
“
Atkinson’s Recommendations
Taxation
• Return to a more progressive rate structure for the income tax, with
increasing marginal rates of tax up to a top rate of 65 per cent,
accompanied by a broadening of the tax base.
• Introduce into personal income tax an Earned Income Discount,
limited to the first tranche of earnings.
• Change Inheritance Tax from [in the UK] a tax on giving to a tax on
receiving, with a progressive lifetime capital receipts tax.
• Council Tax [in the UK] to be replaced by a proportional property tax
based on up-to-date property assessments.
Spending
• Child benet should be paid for all children at a substantially higher
rate, and taxed as income.
• A participation (citizen’s) income should be introduced,
complementing existing social protection, with the prospect of an
EU-wide child basic income.
• OR Restore social insurance to reduce dependence on means-tested
benefits.
• Rich countries should raise their target for Ocial Development
Assistance to 1 per cent of Gross National Income.
Employment and Wages
• The government should adopt an explicit target for reducing
unemployment, and offer guaranteed public employment.
• There should be a national pay policy: with the minimum wage set at
the Living Wage, and a code of practice for pay above the minimum.
• The direction of technological change should be an explicit concern
of policy-makers, encouraging innovation in a form that increases
the employability of workers, emphasising the human dimension of
service provision.
Capital and Wealth
• (a) Introduce a distributional dimension into competition policy,
(b) ensure a legal framework that allows trade unions to represent
workers on level terms, and
(c) establish a Social and Economic Council.
• The government should oer via national savings bonds a
guaranteed positive real rate of interest on savings, with a maximum
holding per person.
• There should be a capital endowment (minimum inheritance) paid to
all at adulthood.
• Creation of a public Investment Authority, operating a sovereign
wealth fund to build up the state net worth.
