Imagine if £450bn of previously hidden assets were suddenly disclosed by Britain’s wealthiest citizens, and became subject to tax. If that seems implausible, it’s simply what has happened in Argentina in recent years.
In 2016, the Argentine government, which has long levied an annual wealth tax on its most prosperous inhabitants, announced an amnesty: if citizens declared hitherto undisclosed wealth, they would be spared prosecution for past unpaid tax. The results were spectacular. Assets worth 21 per cent of Argentina’s GDP, the equivalent of £450bn in Britain, were declared. Revenues from the wealth tax doubled.
The Argentine experience is part of a wider trend that suggests taxing wealth “is definitely more possible today than it was five years ago”, says Juliana Londoño-Vélez of the University of California. Until recently, however, wealth taxes had been on a long, slow decline, their demise hastened by conservatives who successfully painted such levies as an attack on entrepreneurs and a disincentive to saving. Although in the 1990s a dozen European countries levied wealth taxes, that number has since shrunk to three: Norway, Switzerland and Spain. Most developed countries now seek to tax only limited forms of wealth, such as property.
Awareness of growing economic disparities, however, combined with governments’ need for new sources of revenue, has put wealth taxation back on the table. And it is increasingly popular. In September last year, YouGov polling found public support for taxing wealth more, and income less, in every one of the 11 countries surveyed, including the UK, the US, Australia and Canada. And just last week, the same firm’s polling showed three-quarters of Britons back an annual levy of 2 per cent on wealth over £5 million (clear of debts). Under this tax, someone worth £15m would pay £200,000 a year (2 per cent of the £10m they hold over the £5 million threshold).
Some doubt whether the very wealthy, adept at avoiding tax through complex offshore arrangements, could be made to pay such sums. Londoño-Vélez’s research, however, suggests the net is closing, albeit slowly. Argentina’s amnesty was successful in part because countries are increasingly signing treaties which enable them to share bank data on the assets that citizens of one nation hold in the other. In this instance, the US and Swiss tax authorities agreed to start telling their Argentine counterpart what financial assets Argentines held in their banks. The Panama Papers, an explosive leak of tax-haven data in 2016, drastically increased official disclosures from wealthy Argentines who had effectively already been outed.
Governments now have more tools to enforce wealth taxation, Londoño-Vélez says. “It’s an area where there’s a lot of developments happening as we speak.” Tax havens remain “a huge threat”. But, she adds, “I can see where the loopholes are, and I can see how policy can progressively close them.”
The need to tackle economic disparities adds weight to the wealth-tax cause. Wealth is generally twice as concentrated as income (itself very unequally distributed). Recent Oxfam research suggests the world’s billionaires have taken a striking two-thirds of all the new wealth generated since the pandemic. And the world has been more attentive to such questions ever since the publication of Thomas Piketty’s 2014 blockbuster Capital in the Twenty-First Century, which argued that wealth taxation could break up plutocratic concentrations of economic power.
It could also bolster the integrity of the wider tax system. Tracking flows of interest, rent and dividends shows that much income is generated from wealth. And when people are forced to reveal more of the latter, they are also forced to reveal more of the former. Following Colombia’s tax amnesty, the wealthy disclosed over US$12bn of previously hidden assets – but also paid 39 per cent more income tax. A wealth levy, Londoño-Vélez argues, has “a very positive effect on the income tax system”.
Piketty, meanwhile, believes European countries abandoned wealth taxes not because they were inherently flawed, but because the taxes had—under political pressure—become riddled with so many exemptions that they generated little revenue. In certain cases, they also caught the middle classes—something that would be avoided with, say, a tax cutting in at £5 million net worth.
Despite the positive polling, British politicians—especially on the left—may fear the expressed public support is soft, and would melt under the blowtorch of Conservative claims about taxing “wealth creators” and frightening away investment. But Labour could very easily point to Switzerland, which has long had an annual wealth tax that generates roughly 1 per cent of GDP, the equivalent of nearly £21bn a year in Britain.
Such levies have evidently not caused the Swiss state to be suddenly abandoned by its billionaires. Londoño-Vélez, meanwhile, declares herself “optimistic” about the prospects for wealth taxation. “If countries like Colombia and Argentina … have a wealth tax, and have their citizens report their assets,” she says, “I don’t see why it can’t be done in other countries.”
