The latest report to the Club of Rome “Earth for All” (Earth4All) also presents – surprisingly for some – the need to reduce inequality.

by Hannes Swoboda (16.2.2024)

The latest report to the Club of Rome “Earth for All” (Earth4All) also presents – surprisingly for some – the need to reduce inequality. The chapter “The Inequality Turnaround: Sharing dividends’ is about reducing inequality within societies – i.e. at national level. It is about the benefit of the many as opposed to the benefit of the few. This is not only a question of justice, but also of efficiency. “Countries with more pronounced equality achieve better results”, for example in the areas of education, social mobility, life expectancy, health, combating infant mortality, etc. Now this is not always true for all countries and all areas, but there is plenty of evidence that this is generally true.

Climate policy inequality

However, the ethical argument of justice remains. And we know from many studies that the climate policy footprint of the richer is significantly higher than that of the poorer. In Austria, for example, it can be assumed that the richest 10 percent produce more greenhouse gases than 50 percent of the population.

In addition, many of the burdens imposed by increasing the price of climate-damaging products and services affect the poorer classes more than the richer ones. This applies to CO2 taxation, which would affect the increase in food prices in order to create fair incomes for farmers and to enable the restructuring of agriculture in line with climate policy. But it also concerns the conversion of heating systems, which is often associated with high costs.

The greater ecological footprint of the rich on the one hand and the greater financial burden of climate policy measures on the poor on the other must be an incentive to ensure greater equality and thus justice.

The situation in Austria

Austria is a very rich country, but the distribution of income and above all wealth is very unequal – and unfair in the above sense. Unfortunately, the statistics are often very imprecise and inconsistent. But the general picture is clear: 1% of people own just under half of Austria’s total net wealth. Another figure makes it clear: the top 10% receive 30% of total income or hold 60% of assets.

In terms of income and wealth inequality, Austria is among the leaders in Europe. In addition, wealth-related taxes in Austria have been declining for a long time. Inheritance is particularly affected. This “benefit-free income through inheritance” primarily benefits higher income earners. Compared to most European countries, wealth taxation – including inheritance tax – is extremely low in Austria. This also applies to the comparison with our two neighboring countries Switzerland and Germany.

Public benefits

Even the progressive taxation of income is not very redistributive in the end due to many loopholes. Added to this are regressive consumption taxes. What contributes to a fairer distribution are above all public benefits in cash and in kind. Let’s think of family support, healthcare, social housing, kindergartens and public schools, and so on.

Of course, the financing of these benefits also depends on the level of tax revenue. If Austria is now proudly pointing to the abolition of cold progression, one can certainly find good arguments for this measure, but at the same time one would have to consider how to generate the revenue needed for climate policy tasks and for more equality/fairness. For example, we would have to massively expand public – especially rail-related – transport and accelerate the conversion of heating systems. We also need energy-saving housing construction and increased financial incentives for maintenance and renovation to conserve resources.

It would therefore also be important for Austria to keep an eye on both and to link them together: more equality of income and wealth – at least after taxes and duties and taking into account public services – and a healthy financial basis for the social transformation to achieve the climate targets. In any case, this financing must not come at the expense of the already financially weaker groups.

However, financial inequality must not overlook the social, health and cultural inequalities that are often associated with it. People with lower incomes are more often socially isolated, are more often ill and participate to a lesser extent in cultural and educational institutions. With regard to the latter in particular, there is a clear inheritance of good or, depending on the case, poor education. But a good education is also necessary for understanding climate policy changes.

There must therefore be a comprehensive reversal of inequality, which must be brought about both through fairer taxation and through the expansion of financial and in-kind benefits from the state. It is precisely through these transfer payments that the “income share” of the lower third in Austria increases from 12% to 22%, while the share of the upper third falls from 59% to 48%. Although these are not yet radical changes, they show where the climate policy and social journey must go.

A basic dividend

However, the Earth4All report also presents the idea of a basic dividend or a citizens’ fund. All those companies (or citizens) that use common resources such as fossil fuels, land or data to their advantage should “compensate” the general public. According to the above-mentioned report: “Companies that generate CO2 emissions, contribute to deforestation, use public data or extract resources from land or sea, for example, must pay a levy for the use of this public good. Governments would then distribute this revenue fairly to all citizens.”

Personally, this seems to me to be an easier variant of a “basic income” to argue for than the “unconditional basic income”. The proposal combines the intention of distribution policy with the absorption of profits from those who enrich themselves with the resources of the general public. Of course, there are still many questions to be answered, especially in the case of the exploitation of global resources such as the world’s oceans, etc. But the basic idea, which has somehow also been incorporated into the proposals for compensation for damage caused by rich countries, should certainly be pursued further.

A pair of political twins

There can be no doubt that redistribution – even to a lesser extent – provokes resistance. But on the other hand, without more justice there will also be growing resistance – from the socially weaker classes. As always, the report rightly states: “Solutions must be acceptable to the majority if they are not to fail resoundingly.” For this reason alone, the social situation of the middle classes must be taken into account in redistribution. Not all public benefits should be strictly targeted at the lowest incomes.

This will be one of the biggest tasks in the coming years: To ensure a combination of climate policy and greater social justice. Every effort must be made to avoid a fundamental conflict between climate policy and social justice. On the contrary, the two must dominate politics as a pair of twins. Every climate policy measure should be checked for its social impact and every tax and public subsidy and benefit should be checked for its impact on the climate.