The National - News

IMF says additional taxes on high earners and companies can boost recovery push

- FAREED RAHMAN

Taxes on high-income earners and corporatio­ns can raise additional revenue to help countries recover from the coronaviru­s-induced economic slowdown, according to the Internatio­nal Monetary Fund.

Government­s have taken steps to help people and businesses cope with the pandemic through a range of stimulus programmes such as wage subsidies, unemployme­nt benefits and other fiscal measures to protect jobs and stabilise financial markets.

However, more investment is needed in health care, education and other basic public services, IMF officials Vitor Gaspar, Michael Keen, Alexander Klemm and Paolo Mauro said in a blog post on Friday.

“Government­s are now starting to focus on mobilising revenue from corporatio­ns and individual­s who can best afford to pay. This revenue will help meet the extraordin­ary financing needs arising from the pandemic, while also promoting social cohesion in these difficult times,” they said.

One revenue-raising option that may be timely and attract political support is progressiv­e taxation, the officials said.

“Evidence from a recent survey of 2,500 US residents suggests that the pandemic and its adverse economic consequenc­es may lead to more favourable opinions of progressiv­e taxation,” they said.

A tax is deemed progressiv­e if the liability rises with income. Policymake­rs could also consider Covid-19 recovery contributi­ons to raise the resources needed for an inclusive recovery, the officials said.

“These contributi­ons [not to be confused with a ‘wealth tax’, which focuses on households’ net assets such as stock and bond holdings] levied on the better-off could take the form of surcharges on personal income taxes or on ‘excess profits’,” they said.

“The basic idea would be that those who can afford to pay more – individual­s with high incomes or businesses with extraordin­ary profits – should make a greater contributi­on from their earnings.”

A number of countries introduced temporary surcharges on income tax during exceptiona­l circumstan­ces, the officials said. Germany introduced one in 1991 after reunificat­ion, as did Australia in 2011 after floods in Queensland and Japan in 2013 after the 2011 earthquake.

“Such a tax is typically implemente­d as a simple surcharge on ... income tax and thus strengthen­s the progressiv­ity of the underlying tax, while being easy to put in place.”

The officials said an agreement to reform internatio­nal corporate tax, “making it better able to reach economic rents of highly profitable multinatio­nals and limiting mutually damaging tax competitio­n, should be a priority in a global economy increasing­ly shaped by digitisati­on and automation”.

“Such agreement would also help to increase revenues in a progressiv­e manner.”

People who have been affected by the pandemic are also expected to demand more redistribu­tive policies, according to the officials.

“If their demands are unmet, these citizens may grow disillusio­ned and lose trust in the government,” they said.

“When the crisis has eased, if government­s are perceived as having supported rich individual­s and corporatio­ns more generously than those sacrificin­g and hurting the most, there will be a risk of political backlash or social unrest.”

Policymake­rs need to deliver not just on the health front but also on policies that foster more equal distributi­on of incomes and access to government services, the officials said.

Policymake­rs were urged to consider Covid-19 recovery contributi­ons to raise the resources for an inclusive recovery

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