Want a fairer society? This economist says he has the answer

How broken is Europe?

With daily headlines about the UK leaving the bloc and rising populism in other countries, it’s easy to become disillusioned. Now, some blue-sky thinkers say they have the answer: a new body with an annual budget that is 4% of European GDP to spend on research, innovation, education, sustainable growth and the integration of migrants.

French economist Thomas Piketty spearheads the coalition of economists, politicians and historians who have crafted a 50-page manifesto that calls for higher corporate and individual taxes to raise funds amounting to about four-times the current EU budget. That money would finance the creation of a European assembly to make “immediate progress” in bridging the “damaging division” that they say is threatening the region.

“Following Brexit and the election of anti-European governments at the head of several member countries, it is no longer possible to continue as before,” the signatories write. “Europe must build a new model to ensure the fair and lasting social development of its citizens.”

Inequality has risen up the global agenda in the wake of the 2008 financial crisis, which magnified divisions between those on the highest and lowest incomes. While much of Piketty’s work explores these themes, the scale of the problem is difficult to measure and concrete progress to close the gap has been slow.

Vague and theoretical promises must be abandoned and those who have gained from globalization must commit to financing public goods, the authors of the report said.

Their plan is based on four pan-European taxes. One on the profits of major companies, a second on individual citizens earning more than €200,000 a year, a third on those who own wealth in excess of €1 million, as well as a new carbon-emissions tax.

Higher levies for large multinational corporations like Amazon, Apple, Facebook, Google and Microsoft would help raise around 4% of EU GDP, or about four times as much as the present budget, according to the manifesto.

Currently, tax revenue varies widely across the bloc. Including social contributions, the EU average was around 40% of GDP in 2017. The highest ratios were found in France and Belgium, at nearly 50%, while the lowest were recorded in Ireland (24%) and Romania (26%).

Creating common taxes would eliminate fiscal competition between European countries and therefore reduce the ability of tax-paying people and companies to move to low tax destinations, according to the plan.

“Tax justice requires the creation of a sovereign European Assembly that can adopt common taxes on large corporations and wealthy taxpayers,” Piketty writes in a Twitter post. The plan “can start with a few countries, and then extend to others.”

The World Economic Forum’s Inclusive Development Index explores similar themes. Designed as an alternative metric to gross domestic product, it measures development, inclusion and intergenerational equity, and seeks to quantify areas where improvements can be made over time.

Norway was the best-performing advanced economy in 2018, with European nations dominating the top spots. Of the G7 economies, Germany is ranked highest at 12, followed by Canada at 17, France at 18 and the UK at 21. The US was 23rd and Japan 24th.

According to the Forum, Norway has the lowest income inequality in the world, helped by a mix of policies that support education and innovation. It’s also powered by its natural resources, channeling revenues from its oil and gas into a sovereign-wealth fund that shores up its economic future.

Piketty says his grand plan for Europe could be put to work within a few months, if the major European nations decide to take the plunge.

However, the plan would require the political support of each country and common taxes may be difficult to agree in practice.

“The creation of a shared political space will enable citizens to re-write a shared narrative focusing on Europe,” the signatories write. “This project aims to break the deadlock in Europe by creating a sense of European commonality.”