INTERNATIONAL Monetary Fund (IMF) has implicitly pitched for shift in focus on expenditure reform from tax reforms for attaining effective fiscal consolidation by different countries.
In its latest Fiscal Monitor Report titled ‘Public Expenditure Reform Making Difficult Choices' IMF says: While tax reform can help boost potential growth through the removal of distortions, spending reforms have a key role to play in strengthening public service delivery. This will be no easy task, however: even though country preferences about the size and functions of government do vary, as countries become richer, both the demand for public goods and services “Wagner's law” and the cost of providing them (“Baumol's cost disease”) increase relative to other goods and services produced in the economy.”
The report observes that meaningful expenditure reform strategies comprise three main elements: ensuring the sustainability of social spending and the public wage bill-the main items in most governments' budgets; achieving efficiency gains while paying due regard to equity; and establishing institutions that promote spending control.
According to the report, taxation continues to figure on the policy agenda in several countries. In Japan, the second stage of the consumption tax increase is expected in October 2015. In Spain, a comprehensive review of taxation is planned this year; in Greece, amendments to the income tax and tax procedures codes and a new property tax have been legislated; and in the United Kingdom, reductions in recurrent property taxes for businesses and a clampdown on tax evasion have been announced. In the United States, the fiscal year 2015 budget, presented in early March, called for new tax measures (besides the American Taxpayer Relief Act5 and the already announced expiration of some tax credits).
It says that there is also room in many countries to raise taxes on alcohol and unhealthy foods such as sugar-sweetened beverages.
In most developing economies, the level of taxes and social spending (public spending for social insurance and assistance, education, and health care) remains low compared with such spending in advanced economies, severely restricting the potential for fiscal redistribution, it adds.
After discussing the Fiscal Monitor and two other global reports, IMF Executive Board of Directors “recommended designing and implementing clear and credible medium-term fiscal consolidation plans to help mitigate fiscal risks and address the debt overhang in advanced economies, including the United States and Japan.”
They welcomed the shift from tax to expenditure consolidation measures, particularly in those advanced economies where expected shift from tax to expenditure consolidation measures, particularly in those advanced economies where raising tax burdens could hamper growth. Moreover, they agreed that a new impulse to structural reforms is needed to lift investment and growth prospects in advanced economies.
Directors underscored the need for emerging market and low-income economies to rebuild fiscal buffers and rein in fiscal deficits (including by containing public sector contingent liabilities), particularly in the context of elevated public debt and financing vulnerabilities.
|
