IMF calls for tax hikes on wealthy to reduce income gap

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The International Monetary Fund has called on governments to close the income gap between the richest and poorest.

The IMF stated on Friday April 2, 2021, that the gap, which worsened during the Covid pandemic, could be bridged by spending more and taxing wealthy households.

It warned that the economic shock triggered by the pandemic could undermine public attitudes to the fairness of taxation and welfare systems and lead to social unrest.

“Surveys showed governments would have the support of the public if they shifted the burden of taxation away from low and middle earners to better-off members of society,” IMF said.

While calling for governments to provide everyone with a fair shot, the IMF said despite government finances coming under pressure from health and welfare spending during the pandemic, ministers needed to “enable all individuals to reach their potential – and to strengthen vulnerable households’ resilience, preserving social stability” and, in turn, broader economic stability.

The IMF, which acts as global lender of last resort and has issued tens of billions of dollars worth of loans to developing world countries over the last year, said trends during the pandemic that have accelerated a move to digital services would damage the job prospects of unskilled workers and lead to higher rates of long-term unemployment.

“Against this backdrop, societies may experience rising polarisation, erosion of trust in government, or social unrest. These factors complicate sound economic policymaking and pose risks to macroeconomic stability and the functioning of society,” it said.

Recent surveys in the US and Europe showed a dramatic rise in the approval rating for more progressive tax policies, the IMF said, though it was unclear how long the majority of voters would maintain their approval once the recovery was entrenched.

“The pandemic has confirmed the merits of equal access to basic services – healthcare, quality education, and digital infrastructure – and of inclusive labour markets and effective social safety nets.

“Better performance in these areas has enhanced resilience to the pandemic and is key for the economic recovery to benefit all and to strengthen trust in government,” it added.

The managing director of the IMF, Kristalina Georgieva, and the outgoing head of the Organisation for Economics Cooperation and Development, Ángel Gurria, have spent the past year urging governments to deploy their resources, including borrowing facilities, to support welfare programmes for businesses and households or risk widening inequality and social unrest.

The UK has dramatically increased spending over the past year and has pencilled in a further boost, especially on health schools and transport infrastructure, in the next financial year.

But the chancellor, Rishi Sunak, cut £14bn from unprotected Whitehall budgets in 2021-22 and said he would begin increasing personal and corporate taxes from 2023 in a move that Labour described as economically damaging.

More than 100 countries have approached the IMF to solicit help since the pandemic led to the biggest contraction of the global economy since the 1930s.

A package of loans worth $500bn (£360bn), mostly for poorer countries, is due to be announced next week at the IMF and World Bank spring meetings. The expansion of the IMF’s special drawing rights, extra funds to help developing countries cope with the economic effects of Covid-19, is expected to go ahead after the US Treasury secretary, Janet Yellen, said the US would reverse its previous opposition.

“If governments can meet demands for basic services while strengthening transparency and accountability, trust will improve,” the report says.

“With limited fiscal space, governments will need to prioritise efficiency gains toward those most affected by the Covid-19 crisis before scaling up spending.

“At the same time, governments should plan medium-term policies for better basic services and better protection from income shocks while fostering a job-rich and inclusive recovery.

“If governments are unable to meet the challenge, the erosion of trust could lead to more polarised politics in which some call for a smaller government, while those affected by illness or job loss would urge for more government services,” it adds.

Source: New York Parrot and News Agencies

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