Telegram founder and chief executive Pavel Durov said Monday that the messaging platform had removed more “problematic content”, weeks after his arrest in France on charges of failing to act against criminals using the app.

Telegram’s search feature “has been abused by people who violated our terms of service to sell illegal goods”, Durov told the 13 million subscribers of his personal messaging channel.

“Over the past few weeks” staff had combed through Telegram using artificial intelligence to ensure “all the problematic content we identified in Search is no longer accessible”, he said.

Durov added that the platform had updated its terms of service and privacy policy to make clear that it would share infringers’ details with authorities—including internet IP addresses and phone numbers—”in response to valid legal requests”.

“We won’t let bad actors jeopardize the integrity of our platform for almost a billion users,” he said.

Durov was arrested on August 24 as he arrived at Le Bourget airport outside Paris on a private jet.

After days of questioning, he was charged with several counts of failing to curb extremist and terrorist content and released on a five-million-euro ($5.6 million) bail.

During the investigation he must remain in France and report to police twice a week.

Durov—who holds Russian, French and United Arab Emirates passports—initially criticized his arrest, but he has since announced steps appearing to bow to Paris’s demands.

On September 6, he said Telegram would alter its “people nearby” feature to present users with “legitimate businesses” rather than “bots and scammers”.

“This year we are committed to turn moderation on Telegram from an area of criticism into one of praise,” he said at the time.

Durov, an enigmatic figure who rarely speaks in public, has a fortune estimated at $15.5 billion by Forbes magazine, but touts the virtues of an ascetic life that includes ice baths and not drinking alcohol or coffee.

© 2024 AFP

The idea of taxing personal fortunes is under increasing discussion amid the growing disparity in wealth distribution in society.

It’s not in your imagination—the gap between the wealthy and everyone else is growing.

Research by ACOSS and UNSW Sydney shows that the average wealth of Australia’s highest 10% is growing much faster than the lowest 60%. And now, nearly half of all wealth is held by the top 10% of households. So, as the rich get richer and the rest face a seemingly uphill battle to stay afloat, do we need to find ways to rebalance the economic scales?

Associate Professor Bruce Bradbury from the Social Policy Research Center at UNSW Arts, Design & Architecture says wealth inequality—that is, the unequal distribution of wealth in society—is coming under increasing public scrutiny.

“For a long time, interest in inequality has tended to focus on income and ability to consume, but now there’s an increasing focus on what role wealth plays in determining opportunities,” A/Prof. Bradbury says. “And as wealth has become more and more concentrated, that’s caught the eye of more people as a marker of disparity.”

Emeritus Professor Chris Evans, School of Accounting, Auditing & Taxation at UNSW Business School, says there will always be differences in wealth—and wealth inequality, up until a point, isn’t inherently problematic. It is when wealth is too unequally distributed that it can lead to the concentration of economic power and opportunities in the hands of just a few at the top, while those at the bottom are left out.

“It’s when there is gross inequality in wealth that it is a disaster for social cohesion because it unfairly limits opportunities for those less well-off to fulfill their potential,” Prof. Evans says. “So, there is certainly an argument for using some of the excess money at the top end to help some of the people at the bottom, and we might just find that we’ll have a much fairer and more efficient society.”

Taxing wealth at the top

The premise of a wealth tax is to take a small portion of the large amount of money tied up in the fortunes of wealthy individuals and redirect it towards those less well-off via taxation. Governments can then use the revenue raised from the tax to close the wealth inequality gap by improving essential services like education, building more social housing, or increasing supplements for low-income households.

One method of doing this is through an annual net worth tax—a small recurrent financial charge imposed on the value of a person’s wealth (the sum of assets minus their liabilities). It differs from income tax, which is the levy charged on the money received from work or through investments, and arguably provides a more complete picture of their financial power.

A variation of a net worth tax called a billionaire’s tax works similarly in principle but is levied on the highest-net-worth individuals. The idea for a global minimum tax on billionaires of 2% already has some support in principle from countries like Brazil, South Africa, and Germany.

Supporters of net wealth taxes argue it’s fair that the wealthiest have the means and should contribute more, Prof. Evans says. Critics say it unfairly punishes success, could discourage innovation, and lead the rich to move their investments to countries with more favorable tax laws.

“For Australia to introduce a net wealth tax, it would likely need to be either a progressive rate or very modest rate and have a very high threshold to hope to work,” Prof. Evans says. “So, it should probably be less than 1% tax and only for those in the 99th%ile of wealth.

“But even so, it would still need to overcome some complexities to be administered.”

Challenges to implementing a net-worth tax

Implementing a net worth tax in practice is easier said than done. While net worth taxes were once commonplace in the OECD, most have abandoned them due to disclosure, valuation, and mobility challenges.

“Net wealth taxes tend to be very easily evaded as lots of assets are hard to identify or value,” Prof. Evans says. “For example, hiding assets like cryptocurrency is easy; property must be valued yearly, which is a significant undertaking; and many shares are held in private firms with no disclosed market value.”

Some assets are also difficult to convert into money quickly to pay for a new tax.

“Some forms of wealth are just not very liquid,” A/Prof. Bradbury says. “Some people may have one main asset like a valuable property but don’t have much by way of income, so they wouldn’t have a way to pay a net wealth tax.”

All these challenges are manageable, but they require more robust solutions. For example, Prof. Evans says insurance companies could tackle disclosure and valuation by revealing what assets are insured and for what value.

“It sounds like an intrusion, but we already do this with banks who disclose to the ATO the interest they’re paying out to people,” Prof. Evans says. “You can also use good proxies for valuation, such as whatever it costs, and adjust for inflation each year.”

Prof. Evans says wealthy individuals would still have access to the best accountants and asset managers to minimize their tax bills. Still, even if a net wealth tax wasn’t effective in raising revenue, it may send a message to wealthy individuals about the need to contribute a fair share.

The estimated effective tax rate on the wealth held by billionaires worldwide is currently just 0.3%.

“The more non-compliance, the less valuable a tax becomes for raising revenues,” Prof. Evans says. “The few countries that have them now, like Spain, are only raising a small fraction of what they should be in theory.

“Even Switzerland, which has had a reasonably successful annual wealth tax in place in its cantons for many years, raises a relatively insignificant amount of its total tax by taxing wealth.”

Reforming other taxes on wealth

Wealth taxes could bring sufficient revenue to address inequality in a perfect world. But if they don’t work that way in practice, there are some alternatives.

Prof. Evans argues that the next best idea could be reintroducing an inheritance tax—a levy placed on the value of a person’s estate that would be payable at death.

“There is an argument that inheritance tax is fairer in some ways than a net wealth tax because the deceased no longer need their assets,” Prof. Evans says. “The way to tax it would be at a certain threshold, such as the increase on the value of the assets.”

An inheritance tax would also overcome some challenges plaguing the administration of net worth taxes.

“Because the beneficiaries want to know the assets and their value, the valuation and disclosure problems are gone,” Prof. Evans says. “Any liquidity problems are also solved because the assets are sold off as part of the process, or there could be exemptions for spouses or direct relatives with the family home.”

A/Prof. Bradbury says another alternative could be to reshape property taxation by reforming stamp duty to make it work like a tax on land value. It would be particularly effective for raising revenue in Australia, where a significant amount of personal wealth is tied up in real estate.

“A one-off stamp duty transfer levy when a property is purchased is inefficient because it discourages people from moving,” A/Prof. Bradbury says. “Instead, proper land valuations and property taxes paid annually rather than in one lump sum would raise more revenue over time.”

Likelihood of introducing a wealth tax

A/Prof. Bradbury says back home, changes to any tax regime targeting wealth will likely receive significant pushback from some quarters.

“The losers in any tax change tend to make more noise than the winners benefiting,” A/Prof. Bradbury says. “And in this case, the losers likely have significant political influence.”

Prof. Evans agrees, saying it would be a daring move for any government to pull off a form of wealth tax, at least in the short term.

“The public is becoming more receptive to it, but introducing a wealth tax of any kind is still not likely to be popular politically,” Prof. Evans says. “It would take a courageous government with a big majority to attempt it, and there would be big scare campaigns to shut it down.”

While no perfect solution exists, Prof. Evans says more action to tackle wealth inequality should be welcomed.

“As the problem of wealth inequality gets worse, solutions that once seemed pie in the sky may become more palatable and even necessary,” Prof. Evans says. “Ultimately, if there are reforms, I hope we end up with a fairer and more efficient taxation system for all as a result.”