Taking stock of global economic responses to COVID-19
The Organisation for Economic Co-operation and Development (OECD) issued a report Wednesday that takes stock of the emergency tax and fiscal measures that nations around the globe have adopted to respond to the COVID-19 pandemic.
The secretary-general’s report, Tax and Fiscal Policy in Response to the Coronavirus Crisis, also highlights further measures that nations should consider implementing and outlines major policy reforms that ultimately will be needed to begin restoring public finances once the crisis is over. The report was presented during a virtual meeting of G20 finance ministers and central bank governors.
According to the 49-page report, most countries have adopted a broad economic approach using a combination of tax relief, cash benefits, loan guarantees, and other tools. So far, governments’ main priority has been to support business cash flow, but as the public health crisis continues, “solvency risks may become more prominent in addition to liquidity issues”.
Current tax and fiscal responses
Some of the data in the OECD report focuses on nations in the OECD and G20. The chart below shows the percentage of those organisations’ members that have adopted specific emergency tax measures.
As shown in the chart, three-quarters of OECD and G20 countries have deferred some business tax payments. Payment deferral has been, by far, the most common form of business tax relief during the COVID-19 crisis. The data should be viewed as a snapshot in time, given that many nations’ responses are still evolving.
Enhancing business liquidity has rightly been a focus of tax policy responses, said OECD Secretary-General Angel Gurría in a press statement issued with the report. “This has helped maintain confidence through an unprecedented shock. These efforts will need to continue as containment is relaxed gradually, to ensure a strong recovery.”
With respect to fiscal responses, governments have sought to help businesses retain their employees by adopting wage subsidies and have also expanded eligibility for sick-leave benefits and extended income support to households, among other things. Self-employed workers sometimes have been provided unemployment benefits.
Measures needed going forward
As for the future, the OECD report suggests that countries “benchmark their support measures against those of other countries on an ongoing basis and consider whether they are making use of the full set of policy levers available to them”.
In addition, countries should not overlook useful measures to support business liquidity that few nations have used in the crisis so far, such as accelerated value-added tax (VAT) refunds, more flexible VAT bad-debt relief, and a temporary extension of optional cash-accounting regimes, the report says.
The OECD report stresses that while many governments have taken quick, far-reaching, and in many cases unprecedented action, getting the support to the most vulnerable households and businesses presents a substantial challenge. In addition, developing countries will need significant financial support from the international community to help their health and fiscal systems withstand the shocks they experience, the report says.
Once a nation’s containment and mitigation are gradually relaxed, fiscal stimulus may be necessary to shore up recovery, the OECD report says. Stimulus during the recovery phase needs to be carefully timed and well targeted.
In the aftermath of the crisis, “efforts to restore public finances should not come too early, but when they come, tax will have a key role to play”, the report says. “Revenue levels and tax structure may need to be adapted after the pandemic.”
The OECD report is available at oecd.org.
For more news and reporting on the coronavirus and how management accountants can handle challenges related to the outbreak, visit FM’s coronavirus resources page.
— Dave Strausfeld, J.D., (David.Strausfeld@aicpa-cima.com) is an FM magazine senior editor.