IMF renews support for higher taxes to fund recovery

WASHINGTON: Wealthy firms that have done well during the pandemic could pay more in taxes to finance recovery efforts, the International Monetary Fund (IMF) said on Wednesday (Apr 7), as it backs a push for governments to unify their corporate tax rates.

The renewed support for the tax reforms comes as G20 finance ministers are meeting to discuss a minimum corporate tax that would undermine the use of tax havens that drain government coffers.

"The IMF has been calling for a minimum, global corporate income tax rate as a way to interrupt the race to the bottom in corporate income taxation," said Vitor Gaspar, head of the IMF's Fiscal Affairs Department.

Gaspar spoke to reporters as he unveiled the IMF's Fiscal Monitor report which argues that higher taxes on wealthy firms and individuals, even if temporary, could finance policies needed to ensure recovery from the pandemic.

Paolo Mauro, deputy director of Fiscal Affairs Department, highlighted the option of using a "recovery contribution" or surcharge on personal or corporate incomes "given that some corporates have done very well," during the pandemic.

READ: US pushing G20 for global minimum corporate tax: Yellen

Stock prices worldwide, especially among tech companies, have surged throughout the pandemic, picking up speed in recent weeks to set successive new records as the global economy showed signs of a strong recovery from the downturn.

In the United States, the broad-based S&P 500 has jumped more than 50 per cent in the past year, while the tech-rich Nasdaq gained more than 73 per cent.

US President Joe Biden last week announced plans to raise corporate taxes to pay for a massive US$2 trillion infrastructure and jobs program, and Treasury Secretary Janet Yellen this week said she is pushing the G20 to adopt a global minimum tax - a proposal supported by other major economies.

The idea is to ensure companies pay a minimum amount of tax regardless of where they are located, preventing firms from evading taxes by establishing headquarters in countries with lower rates - a practice prevalent among tech companies.

READ: Biden says higher corporate taxes won't harm US economy

The IMF said advanced economies also could takes steps like closing loopholes in capital income taxation, property taxes and inheritance taxes.

"There's a whole range of options available to policymakers," Mauro said.

VACCINES PAY FOR THEMSELVES

Those increased resources can be used for measures to support national economies, notably aimed at accelerating COVID-19 vaccination campaigns and ending the pandemic which will generate returns and boost growth.

Vaccinations will "more than pay for itself, providing excellent value for public money invested in ramping up global vaccine production and distribution", the IMF said in its Fiscal Monitor.

Fund economists calculated that controlling the pandemic sooner than expected - so that most countries have broad and affordable access to vaccines by early 2022 - means "stronger economic growth" and more than US$1 trillion in cumulative tax revenues for advanced economies by 2025.

In the latest forecasts released at the start of the spring meetings held alongside the World Bank, the IMF was more optimistic about global growth this year, projecting a 6.0 per cent expansion after the 3.3 contraction in 2020 - the worst peacetime downturn in a century.

READ: Commentary: COVID-19 will cast long shadows of social repercussions

The IMF pointed to the rapid responses by governments to spend freely - a response totaling US$16 trillion - to help contain the economic damage from the pandemic, but warned that ending the health crisis remains crucial to a solid recovery and vaccine distribution to poor countries was "deeply iniquitous."

The Fiscal Monitor stresses the need for continued government spending, but notes that rising debt levels make it critical for policymakers to target their aid.