Walter Scheidel's
The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century traces the rise and fall of inequality over the millennia. The Austrian economic historian has concluded that inequality has a natural tendency to increase over time, and that falls in inequality are always dramatic and sudden, and caused by war, pandemic, state collapse or revolution. And that like
Kondratieff's Long Wave cycle in economics, they are inevitable.
What's worrying is that Scheidel is suggesting that we're overdue for one of these shake-ups, as the rich are now holding a similar percentage of the world's income as they did before WW2. In the years after WW2, inequality hit a low in the late 1970s; since then it has been rising inexorably. Prof Scheidel shows that events such as smaller wars not involving mass mobilisation, pandemics, civil wars or economic crises do not lead to a reset of the balance between rich and poor. It takes a whopper such as the Black Death, the Great Plague, WWI followed by the Spanish Flu, or the French Revolution to wrest the wealth out of the coffers of society's wealthiest 1% and put it into the pockets of the working man. There was a huge fall in inequality between the late 19th or early 20th century and the late 20th century. For the UK, the share of wealth of the top 1% was around 70%-75% from 1895 to 1906, but bottomed out at 15.2% in 1984.
There's not much we can do about a global pandemic breaking out, but if we don't want wars, state collapse or revolution, we ought to strive to ensure that inequality does not rise again to unsustainable levels. This is nothing to do with an ideological
uravnilovka, a levelling-down of society for its own sake; all to do with avoiding social disturbances and bloodshed. Taxation, as Dutch historian Rutger Bregman said at this year's World Economic Forum in Davos, is the answer. Addressing the audience of billionaires, he said: 'It feels like I’m at a firefighters' conference and no one’s allowed to speak about water.' It is, all about paying tax. "The rest," he says, "is bullshit."
It's time to take a structural look at our tax systems. They stand on the cusp of major technological change, as the process of digitising financial transactions continue apace. I can envisage a situation in which all transactions are taxed at point of sale, and reported in real time. This is easier to implement in VAT (split-payment and real-time reporting fiscal cash registers) and PAYE than for corporation tax (CIT); companies have a duty to their shareholders not to over-pay tax - but shareholders should be mindful that tax revenues foregone to state exchequers through base erosion and profit shifting cannot be made up by charitable giving. Wheezes such as the 'double Irish with a Dutch sandwich', a tax avoidance technique employed by some corporates using a combination of Irish and Dutch subsidiary companies to shift profits to low- or no-tax jurisdictions, do not play well with consumers.
As consumers - and voters - gain a better understanding of how their societies function and are funded, egregious tax avoidance from household-name brands becomes less sustainable. But then governments have a duty to spend tax revenues wisely and not on their cronies or pumping public money into party-political propaganda.
On 19 February, we'll be holding a
conference at the British Embassy in Warsaw bringing experts from Her Majesty's Revenue and Customs (HMRC) to talk about two aspects of taxation - communicating with taxpayers, and digitisation of tax systems. The audience will consist of Polish tax officials and foreign investors - the discussion should be interesting; I'm hoping for some fruitful exchange of best practice.
One key topic is the balance between fairness and simplicity. As Richard Hawthorne, deputy director of customer communications at HMRC says, if you strive to simplify a tax system, it becomes less fair; if your want to make it fairer, it becomes less simple. In Poland, one can see that a desire for fairness beats simplicity hands down. Every citizen, rich or poor, has the same onerous duties to fulfil regarding the tax authorities, including the annual completion of the PIT 11D tax form. In the UK, if you are an employee on a permanent contract (pay-as-you-earn), you may live your entire life without ever seeing a tax return form.
Another is language. The UK tax system has for decades been focused on improving the ease with which the taxpayer understands what is being requested of them. The Plain English Campaign, launched in 1979, has fought a successful battle with banks, lawyers, insurers, and yes, the taxman, to cement the notion that the writer's
responsibility to be understood takes precedence over the reader's responsibility to understand.
The process of rewriting Britain's tax law began in 1997. The rewritten legislation incorporated easier-to-understand language, a more logical structure and shorter sentences, and the Plain English Campaign worked alongside Inland Revenue (as it was then) to make the necessary changes that would be incorporated across all official communications with taxpayers. The UK tax return form has earned its Crystal Mark for clarity. I can attest to this, having filled out my father's tax returns online twice in a row, and on paper the year before that. Unlike the Polish form, one can grasp exactly what the purpose of each question is and what answer is expected.
Simplifying the language used to communicate with taxpayers has clear advantages. In an experiment conducted by the Polish tax authorities (supported by experts from the World Bank) in western Poland in 2015, a letter chasing overdue tax payments, written in straightforward Polish, proved to be 30% more effective than one worded in the traditional way. Yet this experiment remained an experiment. Last year, the Polish tax authorities promoted the notion of '3xP' -
proste, przejrzyste, przyjazne - 'straightforward, transparent, friendly' as part of an overall shake-up of the tax system, intended to bring it up to date with EU standards and technological changes. Will that happen? Will missives from the Polish tax authorities cease to be written in the agentless passive? (example: 'zabrania się'). I have long been banging on about the need for a Plain Polish Campaign.
UK experience over the past 20 years shows that implementing a customer-centric approach, driven by clear communication, is not expensive to do and is a good investment in terms of improved collection. It does, however, require a massive change in thinking among all tax-office employees.
The technology issue is also of huge interest. On the one hand, we have seen the full implementation in Poland of the Single Audit File (Tax) ('
Jednolity Plik Kontrolny'), and the elimination of most VAT carousels based on the automatic cross-interrogation of invoices. Real-time reporting is raising revenues from sectors where cash-in-hand transactions are the norm (from car washes to hairdressers). But on the other hand, there's the rise of cryptocurrencies like Bitcoin, being used to move money across border under the noses of the tax inspectors. How will this look in the future?
Tax is going to get a whole lot more interesting in coming years - the future stability of society rests upon it.
More about taxation in Poland from me here:
Modern governance for a complex world (Dec 2015)
I'm Payin' Taxes, But What Am I Buyin'? (Oct 2015)
More about Polish officialese from me here:
Translation and cultural difficulties (Apr 2015)
Orwell's Politics and Language and Poland (Mar 2012)
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