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Swiss voters’ rejection on Sunday of a proposed new inheritance tax levy on the largest estates will have come as a relief for the country’s ultra-rich.
But the referendum itself highlights a growing public debate across Europe around targeted taxes on the largest fortunes. The trend shows how seemingly arcane academic work can feed through into the political zeitgeist — even if it might take a while . .
TAX POLICY
What’s behind the resurgent wealth tax debate
Eleven years ago, something extraordinary happened in the publishing industry. Capital in the Twenty-First Century, a near-700-page economic treatise by French professor Thomas Piketty, beat out the latest thrillers and celebrity memoirs to hit the top of bestseller lists from the US to Spain to Taiwan.
At the core of Piketty’s text was a formula that I recall seeing plastered on bookshop hoardings on a 2014 trip to Tokyo: “r > g”. That is, the return on capital exceeds the rate of economic growth.
This has been true for most of modern history, Piketty found — except a deceptive period after the wealth destruction of the two world wars — and is set to be the norm again in the 21st century, driving dramatic increases in inequality, as growth in large fortunes outstrips that of labour income.
The way to avoid “an endless inegalitarian spiral” from this “central contradiction of capitalism”, he argued, is through new taxes on wealth — ideally, a progressive tax on capital.
For years, the real-world policy impact of Piketty’s key recommendation appeared negligible. No major economy introduced a wealth tax, while Piketty’s home country — one of the few countries still to have one — replaced it with a real estate levy under new President Emmanuel Macron in 2017.
But recent weeks have highlighted how taxation of wealth has surged up the political agenda, especially in Europe.
Jonas Gahr Støre won re-election as Norwegian prime minister in a contest where wealth taxation was a central topic © OLE BERG-RUSTEN/EPA/Shutterstock
The French government’s attempt to pass its annual budget has been complicated by leftwing parties’ push for a new annual wealth tax — proposed by economist Gabriel Zucman, a collaborator of Piketty — of 2 per cent on fortunes over €100mn.
Norway’s existing wealth tax was at the centre of its September election battle, in which the Labour government — which has raised the levy’s rate — defeated conservative parties pledging to abolish it.
In the UK 53 MPs, most from the ruling Labour party, have signed a proposal for an annual wealth tax of 2 per cent on individual assets exceeding £10mn.
In a referendum on Sunday, Swiss citizens voted down a proposal to impose a new inheritance tax targeting the super-rich, to be levied at a rate of 50 per cent on bequests worth more than SFr50mn. (Switzerland already has a long-standing localised system of wealth taxes, levied by cantons.)
The rising political salience of taxes on large fortunes comes amid the fiscal pressures on European governments facing weak growth, ageing populations and the need for higher defence spending.
As politicians grasp for ways to raise tax revenue, recent academic work on wealth inequality has provided valuable material for left-of-centre politicians arguing for more tax to be raised from the richest. This chart, from the World Inequality Database, co-created by Piketty and Zucman, shows the growth in the share of net wealth held by the richest 1 per cent in the four biggest European economies, as well as the US:
The academic work in this field got a boost last year under the Brazilian G20 presidency, which commissioned Zucman to produce a report on co-ordinated taxation of the ultra-rich. He estimated that developed-country billionaires paid only about 0.3 per cent of their wealth annually through existing capital taxes, far lower than the effective rate paid by their middle-class compatriots.
In a co-authored article, finance and economy ministers from Brazil, Germany, Spain and South Africa publicly endorsed Zucman’s proposal for a global minimum tax rate of 2 per cent annually on fortunes exceeding $1bn.
But in the absence of such a global agreement, most European governments — fearing an exodus of the rich — are resisting calls for national wealth taxes. German Chancellor Friedrich Merz and Italian Prime Minister Giorgia Meloni have both publicly rejected the idea in recent months, while the Zucman proposal was defeated in France’s parliament by 228 votes to 172.
Critics point out that the number of countries with wealth taxes in the OECD developed-nation club has declined from 12 in 1990 to just three today. That’s for good reasons, they argue: such systems are difficult to implement, prone to manipulation, and risk penalising entrepreneurs who have taken risks and sacrificed income to build start-ups.
Economist Gabriel Zucman was commissioned by last year’s Brazilian G20 presidency to write a report on wealth taxation © Nelson Almeida/AFP via Getty Images
Proponents can point to the example of Spain, which imposed a national wealth tax after the Covid-19 pandemic, and made it permanent this year. (This closed gaps in the existing localised system, under which jurisdictions like Madrid had given a total exemption from wealth taxes.) Debate over the economic consequences continues — though it’s worth noting that Spain has been the EU’s best-performing big economy over the past two years, with GDP growth last year of 3.2 per cent against the EU average of 1 per cent.
What seems clear is the international breadth of public support for wealth taxation, as made consistently clear in opinion surveys — including one last year by Ipsos in 18 G20 countries that showed majority support in all of them for increased taxes on wealth.
A YouGov poll in October asked UK citizens for their opinion on a range of tax proposals. By far the most popular was the proposal for a wealth tax of 1 per cent on assets above £10mn and 2 per cent on assets above £1bn. This was supported by 75 per cent of respondents, with a support rate of more than 60 per cent even among backers of the right-wing Conservative and Reform parties. A poll by Ipsos showed a similar result.
Rachel Reeves announced her second budget last week © Reuters
Chancellor Rachel Reeves dismissed the idea of a new wealth levy ahead of last week’s UK budget, which outlined plans to raise taxes to a record 38 per cent of GDP. The government stressed that the higher tax burden — through measures including a freeze on income tax thresholds and higher property levies — would fall most heavily on the better-off.
Yet analysis by the Resolution Foundation think-tank shows that the top 5 per cent of earners will lose a smaller percentage of their income, under this Budget and prior tax changes made by Reeves, than will the 40 per cent immediately below them. Polling in the UK and elsewhere suggests strong voter appetite for tax measures more closely targeted on the richest — and on wealth rather than income streams. One way or another, governments will need to respond.
It’s famously unclear how many of those millions of buyers actually read the whole of Piketty’s Capital (as of this week, all 10 of the “popular highlights” on the Amazon Kindle version are in the first 32 pages). But a decade on from the much-hyped bestseller, its influence — and that of the area of economics it pulled into the spotlight — is becoming harder to dismiss.
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