Finance

Background

A People’s Recovery: Ensuring progressive fiscal measures for a feminist and just pandemic recovery

24 March 2021 | Minutes

This virtual Civil Society Policy Forum session on 24 March 2021 was sponsored by International Women’s Rights Action Watch Asia Pacific, Third World Network, International Domestic Workers Federation, Bretton Woods Project, Shirakat – Partnership for Development, Womankind Worldwide, and Global Alliance for Tax Justice. A video recording of the event can be found here.

Panellists:

  • Moderator: Kate Donald, Director of Program, Center for Economic and Social Rights
  • Towfiqul Islam Khan, Senior Research Fellow, Centre for Policy Dialogue – Bangladesh
  • Ricardo Barrientos, Senior Economist, ICEFI – Central American Fiscal Studies Institute
  • Isobel Frye, Director, Studies in Poverty and Inequality
  • Ruud de Mooij, Advisor, Fiscal Affairs Department, IMF
  • Chenai Mukumba, Policy Research and Advocacy Manager, Tax Justice Network Africa

Session

Kate Donald, Director of Program, Center for Economic and Social Rights

  • Covid-19 has shined a spotlight on the pre-existing inequalities in global society. The fiscal debate has become a big part of the discussion, especially around fiscal space for developing countries.
  • The IMF is playing a big role in the recovery, including in all the countries represented today. Something that sometimes gets overlooked is the IMF’s influence over global macroeconomic policy space.
  • From civil society organisations (CSOs) we have noticed a positive development in the IMF’s policy advice to countries. But there is still a clear divide between the Washington DC-level and the country-level IMF guidance, as was evidenced in the recent Oxfam report.

Ruud de Mooij, Advisor, Fiscal Affairs Department, IMF

  • IMF prediction that by the end of 2022 per capita income will have declined by 13% in advanced economies, but by 18% in low-income countries, and 22% in emerging-market economies. The recovery is going to asymmetric, because developing countries have no access to finance. There’s also asymmetric access to vaccines
  • Also within countries, there are asymmetric outcomes. The poor are hit hardest. Extreme poverty might increase by 100 million people. Women are hit particularly hard.
  • There have been some magnificent responses to the pandemic. $16 trillion globally – an unprecedented fiscal policy response. But it is mostly in advanced economies, where deficits have increased by about 12%, but in other countries it is much less.
  • The advanced economies have mainly given support on the spending side. Amongst the G20, 1/3 of spending went to employment/household income support. Large amount also to firms.
  • We have to think now about the next phases of the pandemic. The reopening will still require fiscal support from governments. The question is how it should change from earlier fiscal measures.
  • The phase after that is paying back the debt. We want to get back on track with SDGs and other development agendas. We’ve done a lot of thinking about the appropriate tax measures going forward.
  • There is a lot of talk about wealth taxes. Bolivia/Argentina have done this. In addressing inequality, this is the most clear way of doing it. But we must learn from the past – this has been done before and abolished because it was actually a more costly process than the money brought in.
  • On corporate tax, it will be an important revenue for developing countries going forward. Post-World Wars, when countries needed to finance recovery they used excess profits taxes. This could be interesting for the future design of corporate income tax.
  • Indirect taxes (e.g. VAT, carbon) are important revenue raisers for the country.

Chenai Mukumba, Policy Research and Advocacy Manager, Tax Justice Network Africa

  • We have been doing work looking at different country fiscal responses on the continent. Looking at Kenya and Sierra Leone today.
  • In Kenya, the government was relatively fast putting measures in place, launching an 8-point stimulus plan. However, 96% of funds went into private sector, despite 83% of Kenya’s population being in the informal sector. There was also no gender lens to implementation.
  • In Sierra Leone, the government was prompt in taking action – it had learnt lessons from the Ebola pandemic in 2014. Support was, however, again concentrated on the formal private sector, who received 93% of support. Only 1% went towards social safeguards. No gender lens to implementation.

Isobel Frye, Director, Studies in Poverty and Inequality

  • Since 1994, the South African economy has not performed very well. There was a lost decade 2008-2018. The budget before C19 was an austerity budget. The pandemic pressed fast forward on SA’s various crises.
  • What is unique in SA’s situation is that we saw deep cuts during the pandemic. The country took an IMF loan, but it covered less than 10% of the budget deficit and had limited impact. There were cuts across the board in health/education/social security, which led to protests.
  • Lockdown relief measures included a care givers grant for people looking after children. There were also child support grants, but these were below the food poverty line. Moreover, many women were unable to receive these grants because they had already taken the care givers grant.
  • In South Africa, inequality and poverty seem not to be considered by the leadership. Far more is said about the credit rating agencies and the international financial institutions (IFIs) than about human rights. Poverty and inequality are eating away at society and structural unemployment is enormous. Public education is very poor and its budget has been cut frequently.
  • We are calling for a women’s budgetary movement. Fiscal and monetary policy movements must prioritise human rights.

Ricardo Barrientos, Senior Economist, ICEFI – Central American Fiscal Studies Institute

  • Without reforms for more fair and effective tax systems in Central America, there is a danger of fiscal unsustainability and vulnerability.
  • A general conclusion the region is that the pandemic response from governments has been necessary, but not sufficient. A problem was a focus on the formal sector, meaning that in Guatemala, for example, 70% of households were not reached by measures.
  • In 2021, Governments have already concluded many support programmes established in 2020. IFIs need to insist that social protection is an important part of recovery.
  • ICEFI has identified cases where, although the resources were available, the assistance programmes were not executed. Corruption is an acute programme of structural magnitude in the region. This creates citizen distrust.
  • All contributions to the governments from IFIs need to include transparency mechanisms. It has to go beyond the IMF manual on fiscal transparency – these are good standards, but are not enough as mechanisms to prevent corruption effectively.
  • We recommend that the IMF/World Bank should support more civil societies that are actively and effectively working against corruption.

Towfiqul Islam Khan, Senior Research Fellow, Centre for Policy Dialogue – Bangladesh

  • In Bangladesh, there was a quick response, but insufficient in scale – Bangladesh ranked 22nd in region (out of 33) in size of stimulus package.
  • Bangladesh government support was dominated by working capital (loans) with subsidised interest rates. A large amount of the loans were directed towards the larger firms, not SMEs. Support in terms of social protection and direct transfers was very low – less than 1% of GDP. In marginalised households, only 25% of households received assistance from the government.
  • Fiscal constraints were a major challenge. Bangladesh is one of the countries with the lowest tax to GDP ratios.
  • Most importantly, the working capital loans were not absorbed by the informal sector. They were not designed in favour of marginalised sectors (e.g. women, youth). It was largely directed towards larger business groups. The stimulus only covered 8-12% of those employed in the country.
  • There are five challenges we can see from cases like Bangladesh’s: (1) tax revenue collection is very low, (2) stimulus packages were not suitable for SMEs, (3) the country’s administrative capacity is limited, (4) data is also limited, (5) we need increased governance of how funds are being used.

Ruud de Mooij, Advisor, Fiscal Affairs Department, IMF

  • Question for Ruud: Given the importance of fiscal policy highlighting, particularly on gender inequality, is the IMF is intending to expand its own gender impact assessments of tax policy reforms? They’ve done it in a few cases so far, but we think they can play a useful role on this.
  • Answer: There is a lot of attention these days on gender budgeting. We are planning various products on gender. (1) working paper that reviews all taxes and the gender aspects of them (2) plan to incorporate that into a wider piece which reflects IMF views on tax and gender.
  • On the informal sector, digitalization does have the potential to reach more people in social spending. There is potential, but it does not always seem as successful as we would hope it could be.
  • It’s been interesting to see we’ve seen both good and bad policy responses to the pandemic. Kenya reducing corporate income tax rates only benefits those that are making profit, who are not the ones who are suffering. Sometimes loan guarantee programmes from governments have had no pickup. It’s been a process of learning and experimenting.
  • Transparency is an issue that is high on the agenda of the fund. We have an active capacity development agenda to try to make a difference.

Ricardo Barrientos, Senior Economist, ICEFI – Central American Fiscal Studies Institute

  • The World Bank and IMF should be very careful on the impact on inequality on tax reform. Recommending a VAT increase in a country with high inequality is very different to doing the same in a low-income country.
  • The IFIs need to contact CSOs. Many corruption problems are happening within government. If you only engage with them, you might be engaging with the corrupt parties.

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