There has been talk in the press in recent weeks about the potential introduction of a wealth tax to help cover the cost of the crisis. Although politicians have thus far largely ignored the question of how they will fund public spending of wartime proportions, it should come as no surprise if the idea of a wealth tax comes to the fore once the public health emergency is over.
Various measures are being considered in the UK to raise additional revenue, such as abolishing higher-rate tax reliefs for pension contributions, an overhaul of how the self-employed are taxed, and a property tax linked to council tax bands. Given that governments will be reluctant to threaten economic recovery by increasing taxes too heavily on businesses, it is more likely that any tax burden will fall squarely on the most wealthy. At its most extreme, this could even take the form of an on-going or one-off windfall tax on net worth.
Earlier this year Richard Murphy, a professor in political economy at City University in London, said a wealth tax could raise up to £174 billion a year in the UK if the government taxed wealth at the same rate as income.
A tax on the most wealthy, although relatively palatable to the general public, is however unlikely to be the silver bullet to deal with the growing fiscal deficit. Governments will need to think very carefully before making changes to the tax system that could potentially drive away high-net-worth individuals, business, or innovation at a time when they will be needed most to kick-start the economy.
Calls for a new wealth tax — which would tax a small percentage of people’s net wealth either as an ongoing or one-off windfall measure — are also increasing. Some tax experts predict this could be dressed up as an “NHS surcharge” to win popular support.