La­garde sets out 'game-chang­ing' re­forms needed to meet chal­lenges

The Pak Banker - - COMPANIES/BOSS -

Game-chang­ing re­forms will be needed to face the global chal­lenge of age­ing pop­u­la­tions and shrink­ing labour forces, In­ter­na­tional Mon­e­tary Fund man­ag­ing di­rec­tor Chris­tine La­garde has said. A speech at the Mas­sachusetts In­sti­tute of Tech­nol­ogy to­day, La­garde said that fis­cal pol­icy will be the "first line of de­fence" as the world's de­mog­ra­phy changes. More ef­fi­cient pub­lic in­vest­ments, more ef­fec­tive tax­a­tion, in­clud­ing of multi­na­tional com­pa­nies, and re­duc­tions in en­ergy sub­si­dies were among her key rec­om­men­da­tions.

"We need a multi-pronged pol­icy re­sponse," she said. "In other words, it is not enough to fo­cus on one as­pect, such as push­ing through a pen­sion re­form. We need game chang­ers."

The first of th­ese is en­ti­tle­ment re­forms start­ing with health­care, which ac­counts for the lion's share of age-re­lated ex­pen­di­ture in­creases, she ex­plained.

As well as in­creas­ing com­pe­ti­tion among in­sur­ers and ser­vice providers, she said more tar­geted spend­ing, more at­ten­tion on pri­mary and pre­ven­ta­tive health­care, the pro­mo­tion of health­ier life­styles and mak­ing more ef­fec­tive use of in­for­ma­tion tech­nol­ogy will be re­quired.

"If th­ese ef­forts can be sus­tained over many years, it would help gov­ern­ments bend the cost curve," she said.

"An­other pri­or­ity is lift­ing re­tire­ment ages to match longevity gains. This would bol­ster the pen­sion sys­tem and ex­tend the pro­duc­tive life of in­di­vid­u­als."

How­ever, she added that pol­i­cy­mak­ers need to en­sure ad­e­quate safety nets for those who are not healthy enough to work longer and said flex­i­ble pen­sion sys­tems, which can re­spond to de­mo­graphic shifts, for ex­am­ple by link­ing ben­e­fits to life ex­pectancy, are favourable. "More broadly, in the cur­rent en­vi­ron­ment of al­ready de­pressed ag­gre­gate de­mand, we need savvy fis­cal pol­icy - one that sup­ports de­mand while en­sur­ing suf­fi­cient sav­ings in pen­sions and health­care." The se­cond game changer is bet­ter tax sys­tems and more ef­fi­cient pub­lic ex­pen­di­ture.

This means broad­en­ing the base for value-added taxes, im­prov­ing the tax­a­tion of multi­na­tional com­pa­nies and strength­en­ing tax com­pli­ance to en­sure ev­ery­body pays their fair share.

On the spend­ing side, she said there must be bet­ter man­age­ment of pub­lic in­vest­ment that mean "twice the growth 'bang' for their ' buck'", La­garde sug­gested. En­ergy pric­ing will also be key, she said, "not only for the pub­lic purse, but for the planet". She called for more em­pha­sis on en­ergy tax­a­tion and less re­liance on en­ergy sub­si­dies, which amounted to $5.3 tril­lion last year.

"This stag­ger­ing num­ber needs to come down so that th­ese re­sources can be bet­ter used. Do­ing it now, when en­ergy prices are low, makes that much eas­ier," the IMF chief stated.

How­ever, she ar­gued there is only so much that tax mea­sures and ef­fi­cient spend­ing can achieve, and that a broad­based push to lift po­ten­tial growth will also be nec­es­sary to pro­vide a "fuller pub­lic purse". One way to do this is to add work­ers. She said one ob­vi­ous group to bring into the labour mar­ket is women. The other is im­mi­grants, who she high­lighted can boost a coun­try's labour force, en­cour­age in­vest­ment and lift growth, pro­vided they are well in­te­grated.

Tech­ni­cal in­no­va­tion will also be key, she con­tin­ued, call­ing on gov­ern­ments to in­vest more in education and re­search and de­vel­op­ment, re­move bar­ri­ers to com­pe­ti­tion, and cut red tape.

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