Top incomes and businesses that thrived during the coronavirus crisis should pay an additional tax to show solidarity with those hardest hit by the pandemic, according to the IMF.
A temporary tax would help reduce social inequalities that were exacerbated by last year’s economic and health crisis, the fund said in its semi-annual budget statement on Wednesday. It would also reassure those most affected that the fight against Covid-19 is a collective endeavor within societies.
IMF fiscal chief Vitor Gaspar told the Financial Times that a symbolic increase in taxes for those who have prospered over the past year would strengthen social cohesion even if there was not an urgent need to repair public finances.
Countries should consider this policy as it would help strengthen the perception of their citizens “that everyone is contributing to the effort needed to recover from Covid-19,” he said.
The IMF cited an increase in inequality during the pandemic, as the youngest and poorest suffered the most, being much more at risk of losing their jobs and incomes.
Advanced economies with strong tax systems are expected to increase their income tax rates for a while, the IMF said, citing the German solidarity tax after reunification as an example.
A special excess profits tax for companies that achieved unusually high returns in 2020 should also be considered, the fund said.
“The symbolic impact of this type of contribution is sometimes very important. . . generally, they occur in very exceptional circumstances where social solidarity plays a particularly important role, ”Gaspar said.
The IMF’s appeal comes as most countries are not facing a crisis in their public finances. Debt levels in advanced economies are expected to stabilize after the pandemic, according to the fund, after rising sharply as countries battled the virus.
Large borrowing by countries last year has contributed to much better economic performance, IMF said; advanced economies borrowed 11.7% of national income, emerging countries 9.8% and low income countries 5.5%.
Low interest rates have helped soften the fiscal shock of this increase in borrowing in advanced economies and the IMF expects the public debt burden to stabilize in these richer countries by the middle of this decade. the decade.
He has downgraded his estimate of future US indebtedness, despite the combined $ 2.8 billion stimulus spending pledged by the Donald Trump and Joe Biden administrations since the IMF’s last budget forecast in October.
However, the world’s poorest countries will find it “difficult” to finance their debts, the IMF said, highlighting this gap between countries which can borrow freely and recover more quickly from the pandemic and those which do not have them easily. ways to get vaccines or support social distancing.
“It is important to stress the multi-speed nature of the recovery and that policies are tailored to the specific circumstances of each country,” said Gaspar.
He called on countries to invest in the production and distribution of Covid-19 vaccines, saying it was the most important immediate fiscal policy to be implemented. This would cost tens of billions of dollars but should boost growth prospects enough to increase tax revenues for advanced countries alone by $ 1 trillion by 2025, estimates the IMF.
“Immunization is likely to be the highest yielding global investment project ever envisioned,” Gaspar said.