Economic Efficiency and Its Non-Obligation to Human Rights

In this essay I will discuss how Economic Efficiency is required for the functioning of the government and how it addresses a different set of tangibles in comparison to human rights law using taxation. I will be discussing it using themes of Social Justice such as Equality, showing how Economics and Human Rights can be brought together and how bringing it together could benefit society and in turn the Human Rights laws of the country.

Mainstream economics treats economics as a science as does Neo-Liberalism. Neo-Liberal theorists discuss taxation as a burden on personal freedom and is something that should be minimized. They believe tax, government interference and regulation should be minimized and public services should be privatized. They believe that they a generator of wealth should not be taxed on his economic efficiency A common example that can be taken is the U.K income tax bracket which can go from 0% tax on an average income of 11,850 pounds to 45% tax on incomes over 150000 pounds, as the higher a person’s income gets the higher they get taxed. A neo-liberalist would view this both counterproductive to society and morally corrosive. Neoliberalism and neoclassical economics place individual choice and equality of opportunity at the center of their theoretical paradigm – with individual freedom being interpreted as freedom from government interference. So the idea of a high income tax bracket proves as a penalty for high economic efficiency. Leon Walrus opinion on the world being a vast market made up of diverse special markets where social wealth is bought and sold, allowing the market to remain perfectly competitive is an ideology where economists become deaf to non-economic voices, human rights obligations don’t exist, the economy becomes de-politicized and there is a pure insulation of economy and economists. Regressive Taxation is viewed as an optimal solution to a country viewed through the eyes of a neo- liberal economist as tax is “fair” and “equal” as it does not take into account any personal condition and everyone is taxed equally. But this ideology is impractical as the starting point assumed in such an ideology is one where everyone is on a level playing field, it impractical due to the mixed political, economic and social conditions each demographic faces.

So when comparing demographics the question that is always asked is what about the developing countries? Developing countries are way too poor to pay for human development and pay for economic growth, as most countries view human development at the expense of economic growth as a false tradeoff. They cannot think of human rights obligations as the resources provided to them cannot be used for subsidies and benefits because of budgetary restrictions. International human rights bodies grant governments a wide margin of discretion in matters related to economic and social policy because they realise the governments are faced with harsh choices regarding the resources to be allocated to human rights obligation and social policy priorities within their existing budgetary constraints. As for the developed countries, their main objective is to keep the scaling the GDP growth of the country and main revenue comes from big corporations investing in the country, so economic elites are less likely to support policies that aim at securing the universal provision of health care, education, housing, and jobs when those policies are costly to those at the upper end of the distribution and the benefits the policies generate are inconsequential to the richer segments of society. Tax exemption is a tactic used by 55% of developing countries and 20% of the developed countries to attract foreign investment, so the burden of tax payment usually falls to the individual taxpayer. All of this leads to a Pareto efficient economy which has no concern for human right obligations as there is foreign investment coming into the country.

Human Rights and how it is being affected by economic efficiency: governments have an obligation to introduce and implement tax laws and systems of tax administration that are capable of generating sufficient revenue for realization of human rights, in ways that comply with other human rights obligations, such as non-discrimination and equality, transparency, accountability and participation. Taxation is a manifestation of a social contract between state and citizen, it empowers the citizen to hold the state accountable as it is he/she who finances the state. Lower corporation tax results in less money available to spend on socio-economic sectors. Saiz states that by using tax to generate income, ‘investment in public services and programs in areas such as health, education, housing, justice, security social protection, transport and communications’ can then take place. Thus by not maximizing available resources, this restricts this from happening. Personal income taxes still yield much less revenue as a proportion of GDP in developing countries than in OECD (Organization for Economic Co-operation and Development) countries. Indirect taxation such as value added taxes on sales and import, export and excise duties on commodities constitutes the primary source of fiscal revenue in least developed countries. This causes a burden on the middle class and people who cannot afford to pay such taxes on essential commodities. Poor countries rely excessively on highly distortionary tax instruments such as taxes on trade or indirect taxes on specific consumption good, in countries such as India tax revenues are currently around 10-15 percent of GDP, far below any country in the West which has been able to develop a proper education, health and infrastructure system, this shows that the government of India simply cannot command the resources that would guarantee each Indian an adequate standard of living. The inequality in income and wealth has also grown in different countries, therefore countries with greater income inequality is associated with lower educational achievement.

Article 12 of the ICESCR recognizes “the right of everyone to the enjoyment of the highest attainable standard of physical and mental health.” However, countries with higher levels of income inequality have worse health outcomes, in terms of life expectancy as well as living conditions as compared to other countries with similar levels of GDP. Another situation to look at is the Corporation tax in the U.K which is at 19% and is going down to 17% in 2020, is causing a big blow to the socio-economic funding of the country. U.K is essentially a tax haven for many corporations as compared to other countries such as Belgium who’s corporate tax rate is at 33.99 percent. This would lower human rights standards as it opens the scope for tax abuse, which may reduce the UK’s ability to generate resources to invest into socio-economic sectors. R Balakrishnan, in Rethinking Economic Policy for Social Justice states that ‘governments that facilitate or actively promote tax abuse and other illicit financial flows through their tax secrecy laws are jeopardizing their compliance with their human rights obligations’. Tax can also be used as a means of redistributing wealth. However, with lower income earners paying the majority of tax, and large corporations paying at a rate of only 19%, this is arguably failing to be achieved. Therefore, wealth redistribution is not taking place, and the UK is arguable promoting inequality within the country. Progressive taxation is one of the least distortionary policy tools available that controls the rise in inequality by redistributing the gains from growth. Article 2(1) of the ICESCR places an obligation on each State Party of the Covenant to take steps, individually and through international assistance and co-operation, especially economic and technical, to maximize the use of its available resources, with a view to achieving progressively the full realization of the rights recognized in the present Covenant by all appropriate means, including particularly the adoption of legislative measures. A lack of adequate resources cannot be used by a state as an excuse for inaction in the face of deprivations of economic and social rights.

People assume that mainstream economics is much like neo liberal economics where the government does not think about human right obligations but the fact that there are supranational bodies such as the United Nations and an International Covenant on Economic, Social and Cultural Rights which guarantee socio economic interests to at the minimum, be discussed. A major facet that confuses people is the tax that they pay. They pay such high taxes whereas corporations in the U.K pay only 19%. Now while taking into consideration the theme of social justice, if a more progressive approach is adopted where corporation tax is raised by a minimum of 1%, the U.K can raise around 2.6 billion in corporation tax funding as well as create an equality of condition as it can be solved through progressive taxation. Another facet of equality to look at is Equality of opportunity is undermined by positive discrimination in the field of Taxation. Taxation has been shown to be a key determinant of gender inequality in the enjoyment of Economic and Social Rights, as tax structures frequently discriminate against women directly or indirectly, whether in their formulation or impact. Article 2(2) of the ICESCR obliges that each state party guarantee that all covenant rights are exercised without discrimination of any kind, eliminating adverse discrimination in the economic and social sphere is a human rights imperative in its own right. As discussed previously most countries think risking economic growth for development in health and education sector is a bad trade off. It misstates the purpose of development and underestimates the returns on health and education. The returns can be very high Private Returns to primary educations are as high as 43% in Africa, 31% in Asia and 32% in Latin America, social returns from female literacy are even higher- in terms of reduced infant mortality, lower school dropout rates, improved family nutrition and lower population growth. Most budgets can accommodate additional spending on human development by reorienting national priorities.

Most of the taxpayers budget goes into the military, debt repayments, unnecessary government controls and mistargeted social subsidies. There 8 times more soldiers than physicians in the Third World. Governments can create a policy and budgetary framework that will improve social efficiency by reallocating resources, from urban to rural services, from general to vocational education, from expensive housing for the privileged groups to sites and services projects for the poor. Countries like China have adopted that by ending school fees from the age of 6-15 and it has paid off as the have more skilled workers and their product and resource development is unique to no other country, their GDP is scaling through the roofs and multinational companies are wanting to invest in China. Taxation also has an accountability function, helping to promote social citizenship and responsive government. Drawing on an extensive body of thought on the role played by taxation in the emergence of the modern state, recent development practice has increasingly focused on taxation as a manifestation of the social contract between state and citizen, and as a means of strengthening accountable governance.

To conclude even though there are compelling reasons to believe that bringing Economics and Human Rights together might just end up confusing people and policy makers. There are many more facts to prove that if brought together they can complement each other and more credibility can be given to the government as they will be upholding values such as fairness, equality and justice. They will also improve their relationship with citizens through accountability and reconcentrate funds where it is needed most and not misconstrue it to ventures that do not benefit the well being of the state.