Page 26 - ASEAN-EU Dialogue 2018: Regional and Inter-Regional Economic Cooperation: Identifying Priorities for ASEAN and the EU

must create jobs and look at the tax and benefits systems, lastly we must respond to the rise in
inequalities by boosting our social policies. We need a fair Europe: that is beyond any doubt.
A fair Europe is not a catchword; a fair Europe is what an overwhelming majority of citizens
expects from us. That is why taxation matters so much. Income and wealth inequality have
reached an all-time high. Wealth inequality has increasingly exceeds inequality of income.
Taxation has a major role to play here as well as how an overall design and structure of the tax
system can promote fairness. Thus, Europe needs to ensure that enough revenues are collected
to fund public policies, while ensuring fair burden-sharing between citizens. This means
reflecting on the progressivity of our tax system but also on the overall balance between all
types of taxes. Taxation has also a role to play in supporting labour markets participation, social
mobility and intergenerational fairness, and it can finally help mitigate income and wealth
inequality. This means we need to widen the way we think about taxation, and consider how it
can fund, incentivize, and correct.”

As pointed out during the“14th Regional Seminar of EU-ACP Economies-Financing
Development Contribution, 2017” (European Economic and Social Committee, 2017),
inequality is a multidimensional challenge of income, wealth, opportunity, education, health
and immigration. The drivers of income inequality differ across Member States.
Unemployment is a factor of inequality in most EU countries. However, in some countries
(such as Bulgaria, Cyprus, Estonia, Lithuania, and Latvia) the weak redistributive effect of
taxes and benefits play a key role. In other countries (Greece, Spain and Portugal) high income
inequality is the result of unemployment combined with an uneven distribution of market
incomes. In the UK and Ireland, market incomes are also extremely unequally distributed.
However, the British and the Irish welfare states do an above average job in reducing pre-tax
and benefits inequalities.

However, one of the most important action is fiscal policy. It is a key instrument for
governments to affect income distribution because it can have a direct impact on disposable
income of households through the design of the tax and benefits system. It can have an indirect
effect on income distribution via two main channels. First, fiscal policy can cause behavioural
responses of firms, workers and consumers, which may affect labour supply and capital
accumulation and thus impact on market income. Fiscal policy can cause macroeconomic
feedback effects. Other policies include, for example, technological changes (sometimes
associated with globalization patterns) can increase the demand of high-skilled employees,
therefore increasing their wage premium and amplifying wage dispersion. Demographic factors,
such as ageing and the composition of households, tend to contribute to a rise in income
inequality.

The EU-ASEAN Cooperation and the Problem of Equality
The Southeast Asian region has been characterized as a growth area for trade and investment.
However, disparities within ASEAN economy, might corner the potential benefits. The region
comprises 10 countries with a total population of almost 600 million people and a combined
GDP of US$ 2.57 trillion in 2018. The region has an average growth of 5.5%. ASEAN foreign
direct investments flows keep on increasing year after year and the outlook for the following
year is also bullish. However, the richest country is Singapore which has in 2018 a GDP per
capita of US$98,014 and Brunei of US$79,726 compared to Cambodia with a GDP per capita
of only US$ 4,321 and Myanmar with a GDP per capita of US$ 6,802. Meanwhile, the GDP
per capita for the Philippines is US$8,893. Of the total FDI flows in ASEAN, Singapore gets
the lion’s share, which is 64% of FDI in the region. Malaysia is a distant second with 16%
followed by Vietnam with 6%. The Philippines is sixth place with 1.6% of FDI in the region.

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