An annex to a report issued Wednesday to Group of 20 leading rich and emerging nations' finance ministers meeting online urged countries to maintain support for households strongly affected by the pandemic, to reduce risks of increased poverty. Experts with the Organization for Economic Cooperation and Development and the International Monetary Fund jointly prepared the report.
"Similarly, relief should remain available for businesses in severely constrained sectors," the report annex stated, noting that targeting of aid as the crisis continues has become more feasible because of better information. In industries where support is being pulled back, "this should be done carefully to avoid sudden spikes in tax burdens or 'cliff-edge' effects," the OECD and IMF experts wrote.
As economies are reopened, moves to stimulate national economies, including tax measures, could play a key role, according to the annex, though it recommended that these be undertaken only if consumption and investment remain persistently low. Larger, more prolonged stimulus might be needed if a recovery is extremely weak, the annex said.
For economies that rebound strongly, the document added, the size and duration of stimulus moves may need to be curbed because these could have procyclical effects if they're continued once a recovery is established.
The annex said tax stimulus policies "should be aligned with longer-term environmental, health and social objectives." Measures could support recovery while furthering longer-term goals, such as targeted support for clean technologies, as this could spur recovery and help accelerate the shift to a carbon-neutral economy, particularly if combined with increased carbon-pricing efforts.
Special tax incentives could also be directed to businesses that adapt their workplaces or facilities to strict safety and hygiene protocols, the annex said.
--Editing by Neil Cohen.
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