INEQUALITY POLICY MIX TOOLKIT Policy 2.2: ‘Fast Track’ Services for the Rich IMPRESSUM AND AUTHORS Irene Bucelli, Research Officer, Centre for Analysis of Social Exclusion at the London School of Economics and Political Science. Pedro Mendes Loureiro, University Lecturer at the Centre of Latin American Studies and the Department of Politics and International Studies at the University of Cambridge, and Fellow of Fitzwilliam College. Abigail McKnight (project manager and lead research- er), Associate Professorial Research Fellow and Director of the Centre for Analysis of Social Exclusion at the London School of Economics and Political Science INEQUALITY POLICY MIX TOOLKIT – 1. Introduction 3 1. INTRODUCTION This policy review is part of the Inequality Policy Mix Toolkit (IPMT), which has been designed to help users de- velop an informed policy approach to tackling inequalities in low- and middle-income countries. It draws on the Multidi- mensional Inequality Framework (MIF), which is grounded in Amartya Sen’s capability approach and identifies inequal- ities regarding people’s capability to live a good life, one they have reason to value and would choose for themselves (McKnight et al., 2019). Seven key life domains and existing inequalities within these domains are identified by the MIF. This multidimensional approach was used to identify a series of inequality-reduction policies which address key quali- ty-of-life inequalities. In the toolkit, policies are organised according to the seven domains of the MIF and the Sustain- able Development Goals (SDGs) of the 2030 Agenda. In total, the IPMT contains 16 inequality-reduction policies (see next page; clearly this pragmatic list of policies is not exhaustive). An important and novel feature of this toolkit is the identification of ‘policy mixes’, which are combinations of policies likely to be more effective than if introduced separately. It is therefore important, to view the following policy review as one part of a comprehensive toolkit. For a more complete picture, i.e. more information about the 16 policies and the four policy mixes, we strongly recommend referring to the full version of this toolkit, which can be downloaded as a PDF document here. 2. THE 16 POLICIES OF THE INEQUALITY POLICY MIX TOOLKIT POLICY 1.1: POLICY 1.2: POLICY 2.1: Universal Health WASH Equal Access Care to Justice DOMAIN 1: DOMAIN 1: DOMAIN 2: Life and Life and Physical and Health Health Legal Security POLICY 2.2: POLICY 3.1: POLICY 3.2: ‘Fast Track’ Basic Education Early Years Services Education and for the Rich Care DOMAIN 2: DOMAIN 3: DOMAIN 3: Physical and Education and Education and Legal Security Learning Learning POLICY 3.3: POLICY 4.1: POLICY 4.2: Vocational Wealth Taxes Universal Social Education Protection DOMAIN 4: DOMAIN 4: Financial Financial DOMAIN 3: Security Security Education and and Dignified and Dignified Learning Work Work INEQUALITY POLICY MIX TOOLKIT – 2. The 16 Policies 5 POLICY 4.3: POLICY 5.1: POLICY 5.2: Minimum Wages Malnutrition Slum upgrading and LMIs DOMAIN 5: DOMAIN 5: DOMAIN 4: Comfortable, Comfortable, Financial Independent Independent Security and Secure and Secure and Dignified Living Living Work Conditions Conditions POLICY 6.1: POLICY 6.2: POLICY 7.1: Accountability Civic Oversight Discrimination DOMAIN 6: DOMAIN 6: DOMAIN 7: Participation, Participation, Individual, Influence and Influence and family and Voice Voice social life POLICY 7.2: Child Marriage DOMAIN 7: Individual, family and social life 3. POLICY REVIEW POLICY 2.2 ‘FAST TRACK’ SERVICES FOR THE RICH Policies to address ‘fast track’ immigration services for the rich. Relationship to ‘Fast track’ immigration services for the rich can result in lower tax revenues in the Inequality and Poverty ‘origin’ countries and a wealth drain, leaving governments with less revenue to spend on poverty reduction policies Through a ‘race to the bottom’ overall taxation of high net worth individuals falls and, as a result, they keep more of their wealth and global economic inequality increases ‘Destination’ countries may benefit in the short-term through an increase in capital inflow, tax revenue and investments, at very little cost to governments Key Actors Governments and international bodies Level of National and international Intervention Domain / SDG MIF Domain 2 SDG 10, Target 10.3 Evidence of These ‘fast track’ immigration services are attractive to high net worth individuals. Pull Effectiveness factors include lower taxes, protection of property rights, safe havens, visa free access to clubs of countries, permanent residence and low ‘entry fees’. Push factors include political instability, corruption, high rates of crime, relatively high tax rates and low wealth protec- tion Since the 1990s, as capital became more mobile, millionaire and billionaire migration increased with a range of investor programmes on offer. From a lower income country perspective there are risks of a wealth drain and capital / rich flight, leaving these countries with lower revenues to invest. The motive for ‘fast track’ immigration services for the rich is to attract wealthy individuals in exchange for various investments (typically set in terms of capital transfers, or purchase of government bonds, or creation of jobs or the purchase of real estate) but the long-term benefits of ‘cash for citizenship’ for destination countries have not been established In many cases individuals taking advantage of ‘golden visas’ don’t even need to live in the destination countries and only spend a limited number of days there each year if any INEQUALITY POLICY MIX TOOLKIT – 33.. Policy Review 7 Challenges and Challenges Facilitating Factors Facilitating Factors • Political: Eradicating ‘golden visas’ • Political: Moves to establish co-ordi- requires international collaboration nated international tax policy for the but there are clear incentives to cheat very rich • Implementation: Ease of capital • Political: Some ‘clubs’ are recognising mobility the risks and are taking steps to clamp down on (e.g. the European Union) • Economic: Very powerful group of individuals who can influence policy • Political: Corruption Costs Variable 8 Policy 2.2 ‘Fast Track’ Services for the Rich Relationship to inequality and Evidence of Effectiveness potential poverty double dividend • These ‘fast track’ immigration services are attrac- • ‘Fast track’ immigration services for the rich can tive to high net worth individuals. Pull factors result in lower tax revenues in the ‘origin’ coun- include lower taxes, protection of property rights, tries and a wealth drain, leaving governments with safe havens, visa free access to clubs of countries, less revenue to spend on poverty reduction policies permanent residence and low ‘entry fees’. Push factors include political instability, corruption, • Through a ‘race to the bottom’ overall taxation high rates of crime, relatively high tax rates and low of high net worth individuals falls and, as a wealth protection result, they keep more of their wealth and global economic inequality increases • Since the 1990s, as capital became more mobile, millionaire and billionaire migration increased • ‘Destination’ countries may benefit in the with a range of investor programmes on offer. From short-term through an increase in capital inflow, a lower income country perspective there are risks tax revenue and investments, at very little cost to of a wealth drain and capital / rich flight. Leaving governments these countries with lower revenues to invest • The motive for ‘fast track’ immigration services for the rich is to attract wealthy individuals in These policies tackle a form of top-end inequality which exchange for various investments (typically set in if addressed also has the potential to benefit the less terms of capital transfers, or purchase of govern- well-off. ‘Fast track’ citizenship policies for the rich have ment bonds, or creation of jobs or the purchase of been developed to attract the global wealthy in exchange for real estate) but the long-term benefits of ‘cash for minimum investments, job creation or real estate purchases. citizenship’ for destination countries have not These have become known as ‘golden visas’ (Brillaud and been established Martini, 2018). In contrast, the only form of ‘fast track’ immigration service for disadvantaged migrants usually takes • In many cases individuals taking advantage of the form of deportation. This policy review is concerned ‘golden visas’ don’t even need to live in the desti- with the ‘fast track’ immigration services offered to the rich. nation countries and only spend a limited number To attract millionaires and their mobile capital, coun- of days there each year if any tries compete with each other in a ‘race to the bottom’ in terms of tax rates and immigration conditions (barriers), with countries setting the lowest tax rates and greatest ease of entry most likely to attract high net worth individuals. From Using data from Forbes Magazine on the world’s billionaires a government’s perspective there are easy potential finan- between 1996 and 2010, Sanandaji (2014) found that 15% cial gains with very little effort involved in terms of setting of self-made billionaires migrated to another country. immigration policy. From a wealthy individual’s perspec- 80% of billionaires who migrated moved to a country with tive, residency conditions can be very lax and ‘millionaire higher per capita income than their birth country and 70% migrants’ might not even need to physically live in a moved to a country with lower capital taxes. It is not only country to benefit from the tax rules. billionaires who are on the move, millionaire migration is common too (Ley, 2010). Most are seeking the same Countries competing in this way reduce the tax burden on thing: lower tax liabilities, safe havens, protection of prop- high net worth individuals and as a consequence of their erty rights and visa free access to clubs of countries, such as collective actions, the amount of tax revenue raised from the European Union. Political instability, pervasive crime, the wealthy, limiting the progressiveness of the tax system.