Politics & Policies

COVID and Tax and Fiscal Policy – They should continue to support households and businesses through containment, then shift to bolstering recovery OECD says

Tax and fiscal policy responses are playing a critical role in limiting the hardship caused by containment measures, and should continue to do so as governments seek to support households and businesses, protect employment and pursue economic recovery from the global pandemic, according to new OECD analysis.

Tax and Fiscal Policy in Response to the Coronavirus Crisis, a report requested of the OECD by the Saudi G20 Presidency, was presented today during a virtual meeting of G20 Finance Ministers and Central Bank Governors. The report takes stock of the emergency tax and fiscal policy measures introduced by countries worldwide. It discusses how tax and fiscal policy can cushion the impact of continued containment and mitigation policies and subsequently support economic recovery. It also outlines the major policy reforms that will be needed to prepare for restoration of public finances.

The report shows that while many governments have taken rapid, extensive and often unprecedented action, getting the support to the most vulnerable households and firms still poses significant challenges. It underlines that developing countries will need specific support – notably significant financial support – for helping health and fiscal systems withstand the current shocks.

“Tax policy responses have been strong and rightly focused to date on providing liquidity,” said OECD Secretary-General Angel Gurría. “This has helped maintain confidence through an unprecedented shock. These efforts will need to continue as containment is relaxed gradually, to ensure a strong recovery. We should meanwhile map out the trajectory to a tax system that can help restore public finances while sharing the burden evenly.”

Maintaining business cash-flow has been a core goal of the fiscal policy measures. Measures include extending deadlines for tax filing, deferral of tax payments, faster tax refunds, more generous loss offset provisions, and some tax exemptions.

Governments have also helped businesses retain their workers through short-time work schemes or wage subsidies, and have extended income support to households, eased access to and expanded eligibility for sick-leave benefits, and sometimes broadened the coverage of unemployment benefits to self-employed workers.

The report points out that as containment is gradually relaxed, expansionary fiscal policy may be needed for a sustained period to stimulate broader household consumption and business investment where recovery is anaemic. Stimulus could foster resilience to health risks and encourage decarbonisation, while policy coordination will make stimulus more effective.

Tax policy can contribute to covering the costs of the crisis, according to the report. The unprecedented nature of the crisis should prompt debate on how wide-ranging tax reforms, including solidarity levies, carbon taxes and supporting greater progressivity across the tax system, can help governments better restore public finances. Low-income countries could benefit from new international efforts to address the challenges they face in taxing cross-border activity and offshore assets.

Addressing the tax challenges posed by digitalisation of the economy, and ensuring that Multinational Enterprises pay a minimum level of tax, will become more prominent issues after the crisis. The increased use of digital services and the need to collect more revenues could provide new impetus to efforts to reach agreement internationally, the report said.

via Tax and fiscal policy should continue to support households and businesses through containment, then shift to bolstering recovery – OECD


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