New Index shows governments worldwide stoked an inequality explosion during Covid-19 pandemic

Poor and rich countries, including the UK, have exacerbated an explosion of economic inequality during the first two years of the pandemic, new research by Oxfam and Development Finance International (DFI) reveals.

The 2022 Commitment to Reducing Inequality Index (CRI Index) is the first detailed analysis published that reviews the spending, tax and labour policies and actions of 161 governments to address inequality during the first two years of the pandemic. It found that despite the biggest global health emergency in a century, half of low and lower middle-income countries cut health spending, sometimes in order to make debt repayments to rich creditors.

Additionally, almost half of all countries cut their budgets for social protection, with nearly three-quarters cutting education spending.

The UK ranks 14th this year, up eight places up from the last analysis in 2020. However the increase in score is entirely due to the government having to comply with new OECD rules on tax dodging, which are low in ambition. Despite the improved position, the UK dropped down the rankings for public services, labour rights and progressive tax. Based on the share of total spending, the UK’s cut to its social protection budget was the 14^th largest, with only one other OECD country – Canada – in the highest 25. UK spending on both social protection and education is now below the OECD average and the corporate tax rate is the third lowest of OECD countries, with tax collection also below the OECD average.

Katy Chakrabortty, Oxfam Head of Policy and Advocacy said “The Index exposes how governments around the world are not only failing to reduce rising inequality, many are also deliberately choosing  policies that will profoundly disadvantage the poorest for years to come.

“Here in the UK, if the proposed real-terms cuts to health, education and social safety nets are implemented, we will fall even further behind other rich countries in the fight against inequality. The impact on families already struggling to make ends meet will be horrifying.

“Rather than balance the budget at the expense of those who need help the most, governments should raise revenue from those who can afford to pay. A progressive wealth tax on the very richest, as well as a windfall tax on corporations’ record profits, could raise billions and prevent the cost-of-living crisis widening the gap between the richest and the rest.”

As poverty levels increased to record levels and workers struggled with sky-rocketing prices of everyday essentials, two thirds of countries failed to raise their minimum wages in line with economic growth. Despite huge pressure on government finances,143 of 161 countries froze the tax rates on their richest citizens, and 11 countries even lowered them. The UK government attempted to do the same before it backtracked last week.

Countries which underperformed this year included France, which fell ten places in the index after cutting corporate tax rates and eliminating its wealth tax altogether. Jordan dropped its budget share for health spending by a fifth, despite the pandemic. Nigeria did not update its minimum wage since before the pandemic, and the US has not raised the federal minimum wage since 2009.

Strong actions to reduce inequality were taken by some governments, including low-and middle-income countries, including:

• Nepal, one of the poorest countries, increased its budget share of health spending by 50 per cent
• Costa Rica put up its top income tax by 10 per cent, and New Zealand by 6 per cent. The Occupied Palestinian Territory increased its social spending from 37 to 47 per cent of its entire budget.
• Barbados introduced a comprehensive set of laws to improve women’s labour rights, and the Maldives introduced its first national minimum wage.

As Finance Ministers gather in Washington this week for the International Monetary Fund (IMF) and World Bank Annual Meetings, developing nations are facing a global economy that is making it ever more difficult to meet the needs of their population. Economic inequality and poverty in poor countries is being further exacerbated by the IMF’s insistence on new austerity measures to reduce debts and budget deficits.

Matthew Martin, Director of DFI said “The debate has catastrophically shifted from how we deal with the economic fallout of Covid-19 to how we reduce debt through brutal public spending cuts, and pay freezes. With the help of the IMF, the world is sleepwalking into measures that will increase inequality further.

“For every dollar spent on health, developing countries are paying four dollars in debt repayments to rich creditors. Comprehensive debt relief and higher taxes on the rich are essential to allow them to reduce inequality dramatically.”

Oxfam and DFI analysis shows that based on IMF data, three quarters of all countries are planning further cuts to expenditures over the next five years, totalling $7.8 trillion dollars.

In 2021, lower income countries spent 27.5 per cent of their budgets in repaying their debts – twice the amount that they have spent on their education, four times that of health and nearly 12 times that of social protection.

Oxfam recommends that in addition to wealth and windfall taxes, governments reverse cuts to social protection budgets, better protect workers’ rights and provide urgent debt relief to low- and middle-income countries.