EU rich-poor divide widens but still a worldwide low

Although the gap between rich and poor has widened in the European Union over the past decades, the bloc is a world leader in fighting inequality, experts say.

Unequal between EU members

The internationally accepted Gini coefficient formula that measures income disparities gives the 28-nation EU, as a whole, one of the best rankings in the world for equality, alongside that of Canada.

Both are rated at a rounded-off 31 out of 100 in the ranking (2017), in which higher indexes indicate greater levels of inequality.

But the scores of various countries within the European Union differ markedly, with some of those of the former communist states in Eastern Europe bringing down the average.

Bulgaria has the highest level of inequality with a Gini index of 40, according to the EU’s statistics office Eurostat.

It is followed by the former Soviet states of Lithuania and Latvia, and then Spain, Portugal and Greece. Britain and Romania — another former Soviet satellite — are next, both measuring 33.

Germany, France and Poland do slightly better, averaging around 29.

Topping the list as the most egalitarian are the three former communist countries of Slovakia (23), Slovenia and the Czech Republic, both around 24.

They are followed by Nordic countries Sweden, Denmark and Finland, along with Belgium, The Netherlands and Austria, all scoring between 26 and 28.

Four decades of widening

While Europe has been more successful than most regions in containing income inequality rises seen around the world, inequalities increased in most of its countries over 1980-2017, according to the World Inequality Lab (WIL).

“The European top one per cent grew more than two times faster than the bottom 50 per cent,” the Paris-based group of experts said in an April report.

It pointed to a focus on reducing inequalities between EU member states rather than within the countries themselves.

The largest rise was in formerly communist eastern European countries that were the most egalitarian during the 1980s and moved towards capitalism in the 1990s.

Here “privatisations associated with the transition from socialism to capitalism have benefited a small elite,” the report said.

The tax effect

In Western Europe the richest 10 per cent earn, on average, seven times more than the poorest 50 per cent before taxes, WIL said. However, after tax, this is only five times more — a drop of 29 per cent.

The post-tax adjustment is 23 per cent in southern and northern Europe and 15 per cent in the east.

While Western European countries tend to impose higher taxes on higher incomes, many eastern countries — such as the Baltic states, Bulgaria and Romania — have a flat tax rate, meaning poor and rich pay the same percentage.

The lack of progressive taxation in some countries, in a context of economic competition, contributes to inequalities, including by undermining financing for public services, WIL said.

Europe still top of class

Despite a rise in inequality, the EU fares better than the United States, it said. The bloc’s education and health systems are more egalitarian and social benefits play a major role.

Since 1980 the revenues of the poorest half of the European population increased by 37 per cent while they stagnated in the United States.

Meanwhile the income of 0.01 per cent of the most well-off increased more than 300 per cent in the United States, twice as much as Europe.

The Gini index put the United States at 39, according to the Organisation for Economic Cooperation and Development (OECD), eight points higher than the EU.

Most of the OECD’s non-European members have a higher coefficient than the EU, for example 33 in Australia, 34 in Japan and as high as 62 in South Africa.