World Economy

Inequality Adds to Fiscal Crises

Inequality Adds to Fiscal Crises Inequality Adds to Fiscal Crises

Economic inequality contributes to financial crises and can undermine human rights, said the United Nations independent expert on foreign debt and human rights, Juan Pablo Bohoslavsky, presenting his latest report to the UN Human Rights Council.

“Inequality can erode the state’s tax base and increase private debt which affects sovereign debt and can undermine stability and lead to financial crises. Conversely the social effect of financial crises can be catastrophic for the poor,” the human rights expert said, UNHRC reported.

There has been an unprecedented accumulation of wealth in recent years by a small but powerful elite: the 80 richest individuals are estimated to own as much wealth as the bottom 50% of the entire world’s population. Global inequality is extremely high and still rising.

“Austerity measures adopted in response to financial crises have pushed many individuals below minimum income levels,” Bohoslavsky said, “and international human rights law has something to say about economic inequality”. His report is clear that states have the obligation to prevent inequality undermining the enjoyment of human rights.

“While human rights law does not necessarily imply a perfectly equal distribution of income and wealth, it does require conditions in which rights can be fully exercised. As a consequence, a certain level of redistribution is expected in order to guarantee individuals an equal enjoyment of the realization of their basic rights,” the expert noted.

In his report, Bohoslavsky offered a range of recommendations to tackle inequalities in the prevention of financial crises and in response to them. These include: financial market regulation, minimum wages, progressive taxation and social protection floors.

“Structural adjustment programs should be subjected to robust human rights impact assessments and not only orientated at short term fiscal targets to regain debt sustainability,” he concluded.

  Illicit Financial Flows

Next to his report on inequality, the expert presented his final study on illicit financial flows, in which he focuses on the tax-related flows: tax evasion by high net-worth individuals, commercial tax evasion through trade mis-invoicing and tax avoidance by transnational corporations.

In the study, Bohoslavsky argues that curbing illicit financial flows and tax abuse is essential not only for realizing human rights, but also for achieving the Sustainable Development Goals.

The expert also presented two country visit reports. His mission to China reviewed how far human rights have been incorporated into the international lending and outbound investment of the country.

His report on Greece called for debt relief to boost the real economy and social inclusive growth. The human rights expert expressed concern that the harsh austerity measures implemented in Greece had contributed to a widespread denial of economic and social rights in the country.

Global inequality currently stands at extremely high levels. The United Nations Development Program reports that the richest 8% of the world’s population earn half of its total income, leaving the other half for the remaining 92%.  

Oxfam has shown that, in 2014, the richest 1% of people in the world owned 48% of global wealth—up from 44% in 2010—leaving 52% of global wealth to the remaining 99% of the world’s population.

Oxfam predicts that, by 2016, half of global wealth will be concentrated among the top 80 individuals. Over the past two decades, income inequality has increased by 9% in developed countries and 11% in developing countries.