On July 25-26, G20 Finance Ministers gathered in Rio de Janeiro where they agreed to take the first step to work together to ensure that the super-rich are fairly and effectively taxed. Whilst the specifics are not elaborated in their joint declaration, the foundation has now been laid for a potential global standard. This is serious global progress towards improving the fairness of tax systems and generating much-needed resources for the fight against poverty, inequality, and climate change.
Thanks to the leadership of the Brazilian G20 Presidency, this is the first time an international standard to tax the super-rich has actually been put on the G20 negotiation table. However, G20 leaders must now go further than their finance ministers. At their Leaders Summit in November 2024, governments must adopt a global standard that taxes the super-rich at a rate high enough to close the wealth gap. In the past decade, the top 1% has amassed over $40 trillion dollars in new wealth, over 30 times more than the entire bottom 50% of the global population.
Under one proposal discussed by the G20, only the wealthiest among us would be taxed. Individuals with over $1 billion in total assets would be required to pay the equivalent of 2% of their wealth in income tax. The potential to generate much-needed revenue for governments would be enormous between USD$193 to USD$242 billion in tax revenue annually.
It is encouraging to see the G20 taking this lead after decades of tax cuts for the rich around the world. These cuts have only benefited the wealthiest and deepened inequality divides. As Finance Minister in Denmark from 1993 to 2000, I experienced first-hand how the lack of global coordination increased the likelihood of such tax cuts. Our government spearheaded several economic reforms that reduced unemployment and strengthened our economy, but it also abolished the national wealth tax in 1995 as part of a political compromise that I regretfully had to accept.
Denmark was one of a dozen OECD countries who, during this period, repealed their wealth taxes. These taxes were meant to ensure a fair contribution from the wealthiest. But instead they were eroded by a proliferation of exemptions, lack of international cooperation against tax evasion, and flawed arguments about their perceived impracticality and unfairness towards those who had to pay. The opponents of these wealth taxes believed that cutting taxes for the rich would ultimately benefit everyone else through investments, job creation and growth. But times have changed significantly and today, the arguments supporting a tax on the super-rich are more compelling than ever.
First, if we are to reverse growing inequality around the world, we must urgently restore fairness in our tax systems. In the decades since I served as Finance Minister, the super-rich have not only multiplied their fortunes, they have also managed to massively reduce their tax payments. Currently, on average, billionaires only pay the equivalent of 0.5% of their wealth in tax. However, untaxed wealth is neither trickling down nor are tax cuts on the wealthy delivering the promised benefits to the rest of society. Instead, wealth is consistently flowing upwards, exacerbating wealth and income inequality, and driving social tensions and democracy backsliding around the world.
Second, untaxed wealth is depriving governments of much needed revenue for public spending. The scale of public investments that are urgently needed to avert the climate crisis are staggering, and the economic impact alone of delaying these investments would be catastrophic. At the same time, new revenue streams are needed to rebuild education and health care, good public infrastructure and strong social safety nets, all of which are the foundation of fair and stable societies.
Whilst I believe that the case for international standards to tax the super-rich is strong, I also know that it will not be easy to achieve. Critics will point to technical barriers, but as a recent report commissioned by the G20 Presidency underscored, these are surmountable. The political barriers may be larger, but they too can be overcome. A recent poll of 22,000 citizens in G20 countries commissioned by Earth4All concluded that 68% favour higher taxes for the wealthy. And now, with several G20 countries having already spoken out in favour of a global standard, the opportunity for a breakthrough in November appears to be within reach.
If successful, international coordination to tax the rich could mark a real turning point away from decades of falling taxes on the rich. Taxation is always the exclusive domain of national governments, but international cooperation is essential to prevent a race to the bottom and reinforce the ability of governments to implement robust domestic tax policies. We have evidence that this can work; in 2021, 140 countries and jurisdictions agreed to an international standard for a minimum tax of 15% on the profits of large multinationals. Over 30 governments have now implemented the corporate tax.
The time is now ripe for similar international action to encourage governments to ensure that the super-rich pay their fair share of tax. But the process is just as important as the hopeful outcome. Namely, G20 leaders will need to establish a truly democratic and inclusive process for setting a new global standard for taxing the super-rich. Despite its excellent work, the OECD is not the right platform because it is not a universal forum. Instead, the task must be entrusted to the United Nations. Having served as President of the General Assembly in 2015 during the negotiations of the UN Sustainable Development Goals, I witnessed first-hand the importance of global standards being negotiated equitably and inclusively. Only a body with universal membership such as the UN can set the type of global standard that we need right now. The future of the planet, our shared prosperity and a fairer future depend on a truly global approach to tax the super-rich. If successful, it can deliver multiple benefits, unlock the resources for our economies to thrive, our democracies to stabilise and our societies to flourish.
Mogens Lykketoft is a former member of the Danish parliament for nearly 40 years, and served as Finance Minister, Minister of Taxation, Minister of Foreign Affairs, and as Speaker of Parliament. He was also the 70th President of the United Nations General Assembly.
