The International Monetary Fund has called on governments to close the income gap between the richest and poorest that has worsened during the Covid pandemic, by spending more and taxing wealthy households.
The organisation said surveys showed governments would have the support of the public if they shifted the burden of taxation away from low and middle earners to better-off members of society, warning that the economic shock triggered by the pandemic could undermine public attitudes to the fairness of taxation and welfare systems and lead to social unrest.
It called for governments “to provide everyone with a fair shot”. The IMF said despite government finances coming under pressure from health and welfare spending during the pandemic, ministers needed to “enable all individuals to reach their potential – and to strengthen vulnerable households’ resilience, preserving social stability” and, in turn, broader economic stability.
The IMF said trends during the pandemic that have accelerated a move to digital services would damage the job prospects of unskilled workers and lead to higher rates of long-term unemployment.
“Against this backdrop, societies may experience rising polarisation, erosion of trust in government, or social unrest. These factors complicate sound economic policymaking and pose risks to macroeconomic stability and the functioning of society,” it said.
The IMF added, “The pandemic has confirmed the merits of equal access to basic services – healthcare, quality education, and digital infrastructure – and of inclusive labour markets and effective social safety nets. Better performance in these areas has enhanced resilience to the pandemic and is key for the economic recovery to benefit all and to strengthen trust in government.”
More than 100 countries have approached the IMF about receiving help since the pandemic led to the biggest contraction of the global economy since the 1930s. A package of loans worth $500bn (£360bn), mostly for poorer countries, is due to be announced next week at the IMF and World Bank spring meetings. The expansion of the IMF’s special drawing rights, extra funds to help developing countries cope with the economic effects of Covid-19, is expected to go ahead after the US Treasury secretary, Janet Yellen, said the US would reverse its previous opposition.
“With limited fiscal space, governments will need to prioritise efficiency gains toward those most affected by the Covid-19 crisis before scaling up spending. At the same time, governments should plan medium-term policies for better basic services and better protection from income shocks while fostering a job-rich and inclusive recovery. If governments are unable to meet the challenge, the erosion of trust could lead to more polarised politics in which some call for a smaller government, while those affected by illness or job loss would urge for more government services.”
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