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John Simkin

Inequality

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According to Alissa Goodman, of the Institute of Fiscal Studies, the British super-rich enjoyed a 30% increase in their wealth last year. A major reason for this is the 40% top rate of tax. The top 1% earns 8% of the nation’s income, while the bottom tenth earns just 3%. The rich pay a smaller proportion of their money in taxes, and that of the poorest is much higher due to regressive VAT. Another interesting fact is that the richest 20% donate just 0.7% of their incomes to charity, while the poorest 20% give 3% of theirs.

A recent survey found that 80% of the population think the gap between rich and poor is too large. However, the 40% top rate of tax is very popular with the owners of our media and this issue is rarely raised in newspapers or on television. This inequality is also favoured by New Labour’s rich backers and therefore it is a problem that is unlikely to be tackled by this government.

I would be very interested to hear what the top-rate of tax is in other countries. Is inequality discussed much in your media?

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Sweden's tax system is widely misunderstood! Here we pay an income tax to our local council, which varies according to where you live, and, if you earn over a certain limit (about what an experienced teacher would earn), then you have a very small amount of state income tax to pay. I pay around 32% to the local council and around 2% in state income tax.

You submit a tax declaration every year, and you have to pay a property tax equal to around 0.75% of 75% (!) of the official taxable value of any house you own. These taxable values are updated every year from an index of actual purchase prices in that area, and vary according to whether the house has any especially desirable features (such as a sea view).

Over and above that there is a wealth tax on assets which are valued at more than 2 million Swedish kronor, but that is fairly negligible. If you're wealthy enough to be eligible, you're usually wealthy enough to afford a tax lawyer who'll make sure that you're exempt!

VAT is at a standard rate of 25% on most things.

And that's about it …

There are payroll taxes paid by the employer which add about 42% of take-home pay to the employers' costs. There's a gap in perception which I've never got my head round, though. The OECD says that the cost of doing business in Sweden is one of the lowest in the industrial world … but local politicians (on the right) say it's one of the highest.

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It is interesting to examine the increase of inequality in Russia since the fall of communism. It is now the home of some of the richest men in the world. In fact, 23 men now own 60% of the Russian economy. Their combined wealth amounts to £44.6bn. In the UK the most famous of these is Roman Abramovich. He now lives in the UK and is officially our richest man (22nd richest in the world) and is estimated to be worth £7.5bn.

How did Abramovich get his money? Well he refuses to say. However, two journalists, Adrian Levy and Cathy Scott-Clark, have been investigating his business career. They have an interesting story to tell.

Abramovich was only 20 years old when Gorbachev decided to legalise private business in 1987. Abramovich, via his contacts in the Communist Party, was able to set up an oil trading company. He then bought cheap Russian oil for a few roubles a barrel and sold it abroad for a healthy profit. This enabled to build up his capital and put himself in a good position to exploit the situation when Russia fully embraced the concept of capitalism.

On 20th August, 1992, Boris Yeltsin announced that Russian industry was to be privatised. He explained that Russia was to was about to become a stakeholding society (a word that Tony Blair prefers to privatisation). Each citizen was to be issued with a voucher worth 10,000 roubles (at the time the average monthly wage in Russia). These vouchers could then be exchanged for shares in the companies that employed them. By taking a stake in the company that employed them, Russians were going to be working for themselves. According to Yeltsin there would be “millions of owners rather than a handful of millionaires”. He added: “everyone will have equal opportunities in this new undertaking and the rest will depend on ourselves… The privatisation voucher is a ticket for each of us to a free economy.” Yeltsin also explained that the state would retain a third of the shares in these companies.

Yeltsin also announced the deregulation of prices. As a result the rouble fell on the foreign exchange market from 230 per dollar in 1992 to more than 3,500 by December, 1994. This wiped out most people’s savings in Russia. The impact on the health of the population was dramatic. Life expectancy for men fell from 65 in 1987 to 59 in 1993. The number of suicides rose by 53% and more than one third of the population slipped below the poverty line.

People in Russia were now desperate for money and began selling their possessions. Abramovich and his mates now made their move. In 1994 stalls started appearing in towns all over Russia. They offered to pay cash for people’s vouchers. The agents employed on the stalls told them they were now worth only a few kopeks. Desperate for money to feed their families, the people sold their vouchers. A recent survey showed that most Russians sold their vouchers during this period.

By 1996 the majority of people in Russia were worse off under capitalism than under communism. Yeltsin was in serious trouble and was expected to be beaten by the communists in the forthcoming elections. His only hope was to mount a propaganda campaign against the communists. He needed money to do this and so he struck a deal with Abramovich and his mates. In return for financial backing he would introduce a “loans for shares” scheme. Yeltsin told the Russian people that this was a temporary measure and once the economy had stabilised, the state would repay the loans and the state would reclaim its shares.

Abramovich was not the only one to take advantage of this situation. Vladimir Potanin, the deputy prime minister, purchased Norilsk Nickel for £78 million (now worth £2 billion). Another member of parliament, the 32 year old Mikhail Khodorkovsky, who helped draft the “loans for shares” legislation, was given the job of policing the system. He now owns 40 former Soviet enterprises and is estimated to be worth £8.4 billion.

During this period Abramovich obtained large chunks of Sibneft (oil), Aeroflot (national airline), RusAl (aluminium), GAZ (cars), Orsk-Khalilovsky (metal), Avtobank (insurance), Kraznoyarsk (hydroelectric), Ust Ilinsky (paper), etc.

The value of these companies have increased enormously since they were sold off for cut-down prices (sound familiar). The workers for these companies have not done so well as they are now earning less in real terms than they were in 1987.

So far Abramovich has spent £250 million on Chelsea. He also lives in England (a 450 acre estate in Sussex) although he is governor of Chukotka. Abramovich is aware that every time he returns to Russia he is in danger of being arrested. Mikhail Khodorkovsky, the richest man in Russia was recently arrested. Others have also escaped to the west and are busy trying to get their money out as well as it will only be a matter of time before their companies are renationalised. It could be argued that the buying of Chelsea is an example of what the Mafia call money-laundering.

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There would seem to be more question marks over Mr Abramovich's activities today.

Russia’s northern Chukotka region which is governed by business tycoon Roman Abramovich is basically bankrupt. This conclusion was reached by Audit Chamber inspectors after a thorough examination of the region’s budgetary performance in 2003 financial year.

See full story HERE

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