The IMF has also backed calls for a global minimum rate of corporation tax.
GOVERNMENTS IN ADVANCED economies such as Ireland should consider a temporary solidarity tax on high earners or companies that performed well during the pandemic, the International Monetary Fund says.
In its biannual fiscal monitor report, the fund suggests governments “could consider a temporary Covid-19 recovery contribution, levied on high incomes or wealth”.
Revenues generated by the tax could be used to fund post-pandemic recovery initiatives.
Not only have pre-existing economic inequalities made the impact of the pandemic worse, inequality itself has been increased throughout the last year, said IMF Deputy Director of Fiscal Affairs Paolo Mauro.
“So if you put those things together, it implies that there is a need to mobilise additional fiscal revenues, and those additional fiscal revenues will then have to be redeployed through healthcare, education, social safety nets,” he told reporters.
“A whole menu of options” is available to policymakers in advanced economies, he said, including property and inheritance taxes as well as a Covid-19 contribution tax.
The latter “could take the form, for example, of a surcharge on the personal income tax [of high earners], or a surcharge on corporate income taxes,” Mauro suggested.
[email protected]: In advanced economies, there’s a menu of options to reverse tax erosion: actions in corporate income tax and other taxes such as personal income taxes; closing loopholes in capital income taxes, also property and inheritance taxes. #FiscalMonitor pic.twitter.com/pOA0hTntBs
— IMFLive (@IMFLive) April 7, 2021
Given that some high-performing companies “have done very well” during the pandemic, particularly in terms of “stock market valuation, there is an opportunity there and that is one of the options that is on the table”.
In general, advanced economies should also consider making income taxes more progressive “and increase reliance on inheritance or gift taxes and property taxation,” according to the IMF report.
Overall, the report highlights the importance of government intervention in combating the worst economic consequences of the pandemic.
An increase in government borrowing over the past 12 months has seen global public debt levels surge by 13% to 97% of world gross domestic product.
“In advanced economies, higher deficits have resulted from roughly equal increases in spending and declines in revenues, whereas in emerging market and developing economies, on average, the rise in deficits has stemmed primarily from the collapse in revenues caused by lower economic activity,” the report states.
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However, “large scale fiscal actions” have staved off “a more severe global economic contraction, greater job losses, and higher social costs”. Intervention by central banks have kept interest rates low, pushing down borrowing costs for governments.
As a consequence, “popular support for better public services, already significant before the pandemic, has likely risen,” the fund believes.
A recent survey suggests that, if a household member becomes ill with Covid-19 or loses employment, the probability of favouring progressive taxation rises by 15 percentage points.
“Meeting the rising demand for basic public services and more inclusive policies is crucial for policymakers to strengthen public trust and support social cohesion.”
The IMF has also publicly backed US Treasury Secretary Janet Yellen’s call for a minimum international rate of corporation tax.
Echoing Yellen’s remarks, IMF Director of Fiscal Affairs Vitor Gaspar told reporters that the fund “has been calling for a minimum, global corporate income tax rate as a way to interrupt the race to the bottom in corporate income taxation.
The way this is framed in the Biden plan, as stressed by Secretary of the Treasury Yellen, is in the context of effort at the global level to combat tax avoidance and evasion, and to make sure that large multinational corporations pay their fair share in taxation.
A global agreement on corporate income taxes will be “important to ensure that governments have the resources needed to various spending priorities,” the Portuguese economist said.