Lessons from Switzerland: Taxing capital is the only sensible way to increase growth and reduce inequality

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We have just returned from a glorious week visiting family in Switzerland, it was wonderful; meeting people you love after so long is more than joy. Our family has, among other businesses, a high tech pig farm and it was fantastic to ‘meet’ the pigs and learn from them. One of the most dramatic lessons was that, contrary to the popular aphorism that “[something apparently impossible] can only happen when pigs fly, ”the farm has at least one flying pig. Ergo, anything is possible!

And, indeed, one of the surprising things I learned, about champagne and an aperitif (dinner before dinner) at a friend’s house one evening, is that at the next national referendum [on September 26], citizens are invited to vote on an initiative that will reduce income tax and increase capital tax. I knew Switzerland actively uses referendums to make laws – they have had over 500 referendums, many more than any other country that uses referendums from time to time (eg Brexit). But I was amazed that the home of the world’s private banking and a country with the second-largest net financial assets per capita, recognized that taxing capital, at this point, is the only sane way to increase growth and reduce costs. inequality. If the Swiss are anything, they are sane, and while I (and many others) have been talking about it for some time, I guess years of negative interest rates have a way of opening minds.

Switzerland is a small country in the scheme of things, but the idea of ​​taxing capital is widespread all over the world. While this also makes sense in India – we need to pump a huge amount of money into the low income segments, perhaps with an incentive to spend to spur growth and significant investment in social infrastructure – for me, the biggest lesson because India emerged from the structure of Swiss politics. Like most countries in Europe, Swiss democracy follows proportional representation – political parties are allocated seats in parliament in proportion to their share of the vote – as opposed to the first past the post system that prevails in India (and, incidentally, in the United States, another faltering democracy).

If India had proportional representation with, say, a total vote cut of 2% [meaning only parties with more than 2% of the popular vote were eligible], this would mean that in the 2019 elections, the BJP with 37.36% of the vote would have 274 seats (against 305), which is less than a simple majority; Congress with 19.49% of the vote would have 143 seats against 52 in the current system; the DMK with 4.07% of the vote would have 29 seats against 22 currently; the BSP, the Samajwadi Party, the TMC, the YSR Congress and the Shiv Sena are also reportedly represented in Parliament. Of course, if we had had proportional representation, the voting shares would have been drastically different, with the BJP and Congress losing votes and the smaller parties increasing their voting shares. Indeed, in this system, there would be no alliance maneuvers before the elections, which would considerably reduce corruption and crime and increase the number of alternative opinions offered to citizens. Partnerships should be forged after the elections and coalition governments would be the norm, as is the case in most countries in Europe.

Critically, this approach would also significantly reduce the amount of money in politics – the world’s most expensive per capita elections are held in the United States and India, two countries that have the first past the post system. Although proportional representation has its drawbacks – for example, you can vote for a particular candidate that you really like but, even if their party gets a certain number of seats based on the share of votes (including yours), your candidate may not be selected as the party’s representative in Parliament. In my opinion, however, this is a minor issue compared to the revolutionary change the new process would bring in the way India is governed.

To bring about a constitutional change requires a two-thirds majority in both houses of Parliament and while it may sound like a mad rush, it is significant that our constitution has been amended about twice a year since its inception. Of course, the BJP, which would be the biggest loser, would fight tooth and nail; however, all other political parties would benefit, as would all Indian citizens (including those who vote for the BJP). To move that, the first step is to push the BJP below a third of the seat count – that is, below 181 seats – in the next election. It’s a huge job, but remember that anything is possible.

The author is CEO of Mecklai Financial
www.mecklai.com


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