KUALA LUMPUR, Malaysia, Sept 21 (IPS) – As developing countries struggle to cope with the epidemic, they risk further setbacks by limited monetary policy. These were imposed by rich countries who would never practice them again. Instead, the Global South urgently needs bold policies to ensure adequate relief, recovery and reform.
Courageous financial response is required
The government must deploy resources that are consistent with the Sustainable Development Goals (SDGs) and sustainable and equitable. As rich countries refuse to help further, adequate government funding is crucial.
Taxes are generally a more sustainable, effective and accountable way to increase public financial resources. But the epidemic has made extraordinary demands that require massive emergency spending.
National authorities can create financial resources in two main ways, either through revenue collection or orrowing. Government orrons are usually needed because the revenue has been affected by the recession.
Controlling the infection and preventing a temporary recession requires massive financial resources and appropriate spending – e.g., due to lockdown – from chronic depression.
Monetary policy involves both the production and expenditure of government resources. But developing countries are much more conservative in spending than the rich. The latter has launched many daring relief and recovery packages.
Government spending and taxation must be progressive in both short, medium and long term. Much depends on how the revenue is raised and spent. Therefore, both taxes and expenses need to be considered.
Taxes are now less progressive
The government needs to develop rapidly progressive ways to finance the massive expenditures needed to protect both life and livelihood. Over the past four decades, many governments have reduced progressive direct taxes, instead adopting reactive indirect taxes.
The high tax rate on the rich has made direct taxes progressive. The regression was mainly due to the lobbying of powerful elites, including foreign investors. Influential Washington-based Bretton Woods international financial institutions lead such advocacy.
The income of the rich is mainly from wealth, instead of paying for wages, salaries or goods or services. But tax rates in most countries, as well as property, inheritance and corporate income, have fallen in most countries.
Assets are often intact, or only lightly taxed at low rates. The new rules now allow the transfer and concealment of assets abroad. Based on an estimate, the offshore is kept between -3 8-35 trillion, which obscures the density and inequality of assets.
Taxes can reduce existing inequalities, but taxes are generally progressive despite widespread speculation. Worst of all, most state spending is reduced by responsive, highly publicized social spending.
Difficult to measure, the impact of epidemics on various inequalities varies considerably. Nonetheless, the vicious cycle linking economic hardship with corruption has exacerbated inequality.
Ensure progressive taxation
To be fair, taxes must be progressive. In a more equitable tax system, more revenue should be obtained from those who can pay the most while reducing the burden on the needy. Wealth tax is the most progressive way to increase revenue and reduce inequality.
Direct taxes on assets and income are potentially progressive. Increasingly high rates and discounts for the poor could ensure this. Low rates of investment income and assets – such as property, assets and inheritance – can be increased. In addition to reducing inequality, they can finance progressive spending.
Duties and additional profits are not only universally accepted, but can also raise substantial funds. Some corporations and individuals have benefited greatly during the epidemic, for example, U.S. billionaires have reportedly become richer by more than a trillion dollars in the past year and a half.
In the long run, progressive taxes mean less reliance on indirect taxes যেমন such as sales or consumption taxes with value added, or goods and services taxes যা which impose a much heavier burden on low-income earners.
Tax evasion by the rich must also be prevented. Companies using tax havens for underpayment can be penalized, for example, by disqualifying them from all government and state-owned enterprise contracts. The tax system can be made more progressive through improved design and strict, equitable application.
Urgent systematic reform is needed to ensure a just recovery. Although the economic downturn is unlikely to generate much revenue in the near future, the introduction of such reforms will now be much easier politically.
Taxes can transfer financial resources from the rich to the needy. Those who are now at risk due to the epidemic and its wide-ranging effects, including those living uncertain lives, need immediate help. But financing provides liquidity for relief and recovery, avoiding prolonged economic contraction and stagnation.
In many countries some epidemic relief expenditures have been politically well-connected ‘captives’ as the political elite and their friends take advantage of new opportunities. These compromises are not only relief and recovery, but also reform efforts.
When relief and recovery are considered temporary ‘one-stop’ measures, they are less likely to solve pre-epidemic problems, including Assamese. The government should instead use the crisis to advance SDG solutions for both the medium and long term.
Multilateral cooperation required
International cooperation may help, but the Organization for Economic Co-operation and Development (OECD) has long focused on tackling offshore tax evasion in order to generate more revenue for itself.
A decade ago, it expanded its focus, but continued to emphasize its own leadership at the expense of developing countries. Thus effectively shutting down multilateral tax cooperation for decades, ignoring the strong UN mandate for development and other summits.
Fair international tax reform is urgent. But these encourage border flows through previous reforms, enabling illicit financial flows from developing countries.
While not likely to generate too much revenue for some time, U.S. Treasury Secretary Janet Yellen’s global minimum corporate income tax proposal deserves strong qualified support.
Developing countries need to ensure that transnational companies are better taxed instead of the current G7 proposal for lower rates. Revenue should be distributed according to where both production and cost are, rather than where sales are made.
Effective investigation of tax abuses requires access to financial information and general, fair and transparent rules, not imposed by the rich. But such results can only be achieved through UN-led multilateralism with the equal participation of the governments of developing countries.
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© Inter Press Service (2021) – All rights reservedOriginal Source: Inter Press Service