IMF backs taxes on pandemic winners and wealthy to tackle Covid fallout

IMF backs taxes on pandemic winners and wealthy to tackle Covid fallout

The International Monetary Fund has proposed temporary tax hikes on corporations that prospered during the pandemic or the wealthy as a means to cover the cost of the coronavirus crisis and support more disadvantaged people.

The recommendation, outlined in April’s Fiscal Monitor report, stated that companies that saw “excess” profits during the pandemic should be liable for “recovery contributions”, while wealth taxes on high earners should be considered by legislators on a temporary basis.

The IMF stated strengthening tax capacity in the postpandemic world would be "crucial" for countries to meet their spending needs and that reforming tax policy could raise additional revenues in the "least-distortive ways".

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But it suggested countries could boost public confidence that revenues from tax reforms will be used adequately by communicating that higher taxes would finance specific needs, such as health care.

The report stated: "Strengthening tax capacity in the postpandemic world will be crucial for advanced and developing economies alike to meet large spending needs.

"In addition, countries with robust tax systems may consider levying temporary Covid-19 recovery contributions as supplements to top personal income tax rates.

"Alternatively, taxes on 'excess' profits (economic rents in excess of the minimum return required by investors), either in addition to or instead of the regular corporate income tax, can assure a contribution from businesses that prosper during the crisis and not affect companies (and their workers) otherwise earning minimal profits or incurring losses."

These measures, the report claimed, were in response to both the fiscal demands of the global recovery, as well a need to tackle the “exacerbated pre-existing inequalities" and poverty brought on by the pandemic.

It said the pandemic had laid bare inequalities in access to basic services—health care, quality education, and digital infrastructure - which threatened to cause income gaps to persist generation after generation.

Vitor Gaspar, director of the fiscal affairs department, wrote in the IMF's half-yearly report that beyond providing access to vaccinations, it was “crucial to give everyone a fair shot at life success”. 

“Pre-existing inequalities have amplified the adverse impact of the pandemic, and, in turn, Covid-19 has aggravated inequalities.

"A vicious cycle of inequality could morph into a social and political seismic crack," he wrote.

Gaspar added that inequalities in access to public services, including health care, social safety and education must be addressed through “redistributive policies”.

Such measures will “require substantial increases in tax capacity and improvements in the efficiency of public spending. Such strong demands on the public sector require good government.”

In December, a report from Warwick University and the London School of Economics found a one-off wealth tax on assets above £500,000, levied at 5 per cent, would raise more than £260bn for UK public finances

However, some critics of such a wealth tax say that those who are “liquidity restrained” — asset rich but cash poor — may have to sell assets, such as a family home, to pay the tax bill.