How Governments Can Use Tax Policy To Speed Pandemic Recovery

February 26, 2021

The COVID-19 pandemic has created opportunities for a fairer, more robust and more efficient tax revenue and spending system.

Governments worldwide have responded to the COVID-19 crisis by ramping up public spending and rolling out emergency fiscal response measures in an effort to bolster healthcare systems, strengthen social protection, and boost the economy. By November 2020, more than $25 trillion in financial support was announced by Asian countries to combat the pandemic. At the same time, tax collections are declining everywhere.

Even prior to the pandemic, tax revenues in many Asian developing countries were below the level needed to achieve the Sustainable Development Goals (SDGs). The COVID-19 pandemic has driven these revenues further down, and brought socio-economic hardship on a scale not seen before.

This is expected to push tens of millions of people in the region into extreme poverty, sharpen pre-existing inequalities and roll back decades of progress on sustainable development. How can governments finance the response to these challenges?

Governments will need to raise taxes once the pandemic abates. A possible solution lies in taxing property and wealth. Over the past two decades, the Asia-Pacific region has undergone a remarkable economic transformation. However, it has also brought with it a surge in income inequality.

A widening wealth gap between the “haves” and the “have-nots” and the concentration of wealth and power in the hands of a few, could erode social cohesion, threaten political and economic stability and, consequently, undermine investors’ confidence.

Inequality also makes a greater proportion of the population vulnerable to external shocks and possibly deepens pockets of poverty. Taxing the wealthy, many of whose incomes have been largely unaffected or even enhanced by the crisis, needs to be part of the solution.

To this end, taxes on property, such as recurrent taxes on immovable property, recurrent taxes on net wealth, taxes on estates, inheritances and gifts, as well as progressive income taxes should be considered as part of countries’ medium and long-term revenue strategies.

Source: https://blogs.adb.org/

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