By Larry Elliott
Governments should consider levying higher taxes on the income or wealth of the rich to help pay for the enormous cost of tackling the Covid-19 pandemic, the International Monetary Fund has said.
Inequality had widened in the year since the virus first hit the global economy, the IMF said, and there was a case for the better off being asked to pay more on a temporary basis to meet crisis-related financial costs.
In its half-yearly fiscal monitor report, the IMF called for domestic and international tax changes that would boost the money available to expand public services, make welfare states more generous and meet the UN’s sustainable development goals.
“To help meet pandemic-related financing needs, policymakers could consider a temporary Covid-19 recovery contribution, levied on high incomes or wealth,” the fiscal monitor said.
“To accumulate the resources needed to improve access to basic services, enhance safety nets, and reinvigorate efforts to achieve the sustainable development goals, domestic and international tax reforms are necessary, especially as the recovery gains momentum.”
At a press conference to launch the fiscal monitor, a senior IMF official said there was scope in rich countries to target those individuals and companies that had prospered during the pandemic.
Paolo Mauro, the deputy director of the IMF’s fiscal affairs department, said there had been an “erosion” of the taxes paid by those at the top of the income scale, with the pandemic offering a chance to claw some of the money back.
“Governments could consider higher taxes on property, capital gains and inheritance,” he said. “One specific option would be a Covid-19 recovery contribution – a surcharge on personal tax or corporate income tax.”
Although the pandemic had led to a sharp drop in average incomes, Mauro said some individuals and companies had done “very well” out of the crisis.
The IMF said fiscal policy – tax and spending measures – should target support on the poor and vulnerable. It has also publicly backed the call by the US Treasury secretary, Janet Yellen, for a minimum corporate tax rate to make it more difficult for big multinational corporations to minimize their tax payments.
A year marked by the biggest contraction in the global economy in modern times had focused attention on governments and their ability to respond to the crisis, the IMF said. Popular support for better public services, already significant before the pandemic, had probably risen.
Urging rich countries to use their resources to speed up the vaccination programs in poorer nations, the IMF said the upfront costs would be outweighed by the faster growth that would result.
The IMF’s world economic outlook – its forecasts for the next two years – contained an upside scenario in which the pandemic was controlled sooner in all countries. This showed stronger economic growth would yield more than $1tn in additional tax revenues in advanced economies, cumulatively, by 2025, and save trillions more in fiscal support measures.
“Vaccination will, thus, more than pay for itself, providing excellent value for public money invested in ramping up global vaccine production and distribution,” it said.
Vitor Gaspar, the director of the IMF’s fiscal affairs department, said: “Pre-existing inequalities have amplified the adverse impact of the pandemic. And, in turn, Covid-19 has aggravated inequalities. A vicious cycle of inequality could morph into a social and political seismic crack.”
Credit: The Guardian