COVID-19 has hit the global economy hard. Governments around the world have injected US$11 trillion in fiscal measures to keep the economy afloat, and the UN Conference on Trade and Development calculates that low-income countries would immediately require an extra US$2.5 trillion to prevent economic collapse.
Failure to address the economic fallout would have devastating consequences.
In answer to the big question, how are we going to pay for this, I say: We need a global response and it needs to be progressive.
Illustration: Mountain People
I recently outlined 10 possible ways to raise US$9.457 trillion a year over the next decade, enough to not only cover the costs of the COVID-19 pandemic, but also to meet the investments required to address the other social and environmental crises the world faces.
Before introducing some of these proposals, it is worth addressing the question of whether the debts need to be paid back at all.
Even the IMF — the chief architect of austerity — is making noises that rich governments can afford to accumulate high debts without negative consequences. Just as a household can manage a bigger mortgage when the interest rate is small, it is argued that a government would have no problem servicing its repayments because rates are at a historic low.
Moreover, as these governments can repay their debts in their own currency, they always have the option to print money. This is a privilege not available to any household with a mortgage.
This is a welcome departure from the austerity narrative preached by governments around the world in the aftermath of the 2008 financial crisis.
However, to deal with the scale and global reach of the economic crisis, more progressive proposals are needed to raise funds than simply “getting into more debt.”
Most importantly, many poorer countries already face dangerous amounts of indebtedness, with 64 countries currently paying more on servicing debt than on healthcare. This is not the fault of the countries themselves, but the legacy of decades of neoliberal policies and the longer history of colonial inequality.
As this debt is increasingly owed in foreign currencies, these countries do not have the privilege of printing money to repay their creditors.
To deal with this, low-income countries immediately require their debts to be canceled and money to be injected into their economies.
Following the call of Progressive International and the UN Conference on Trade and Development, the international community should cancel US$1 trillion of low-income countries’ debts and issue US$2.5 trillion of special drawing rights (SDRs) — the IMF’s own international currency.
Just as a gift voucher frees up money to spend on other things, a country that receives SDRs can trade them for real currencies to repay foreign debts, freeing up money for healthcare and poverty reduction.
The international community is slowly coming round to these ideas.
IMF managing director Kristalina Georgieva has said that issuing new SDRs “isn’t off the table,” while the G20 just this month agreed to cancel some of the debts of the poorest countries in the world.
However, the G20’s plans have been criticized for not including private creditors, who increasingly hold poor countries to ransom in what World Bank president David Malpass has called “the modern equivalent of debtor’s prison.”
Debt cancelation and issuing SDRs are just two possible financing mechanisms that can support low-income countries. There are other policies that can raise money for all countries, while simultaneously tackling inequality and promoting peace.
The question, how are we going to pay for this, should be, who is going to pay for this?
Arguing for progressive taxation would be key to winning this debate.
There is a strong case for British Chancellor of the Exchequer Rishi Sunak to implement new taxes on the companies and wealthy individuals who have benefited during the pandemic. This approach should not be limited to the UK.
If implemented across the globe, an excess profit tax could raise US$104 billion annually and a new wealth tax could raise US$4.4 trillion annually — theoretically, enough to pay for all the COVID-19 spending in just a couple of years.
Global coordination could also help ensure that companies and the wealthy do not hide their assets in tax havens.
Shutting down tax havens — and taxing corporate profits and hidden individual wealth at current rates in the countries where they live and sell their products — would raise US$200 billion to US$600 billion a year, the IMF has said.
Clearly this would require enormous international cooperation — but there is a precedent. In 2010, then-US president Barack Obama passed into law the US’ Foreign Account Tax Compliance Act, which imposes automatic exchange of data between foreign banks and the US Internal Revenue Service.
A similar exchange scheme was in 2014 implemented across the world by the G20 and the Organisation for Economic Co-operation and Development with a common reporting standard.
While these reforms exclude low-income countries and leave considerable wealth and profits hidden offshore, they show that public pressure, scrutiny and political will can deliver change.
Reclaiming 10 percent of global military spending, as called for by global campaign groups and US Senator Bernie Sanders, is another key tool that could raise US$191.7 billion a year globally — enough to fund 43 more WHOs.
If this seems utopian, consider the fact that South Korea has said that it would trim next year’s defense budget by 2 percent (US$738 million) and Thailand plans to cut its defense spending by 8 percent (US$557 million), with the money instead going to a disaster-relief fund and a stimulus package respectively.
The pandemic has simultaneously exposed the costs of a deeply unequal world and shown the possibilities for radical action.
Political action can be mustered in a matter of weeks, if political leaders deem it necessary. However, as former British head of the home civil service Gus O’Donnell said: “The iron law of tax changes is that the losers scream.”
Shutting down tax havens, redirecting military spending and canceling debts would face strong resistance from the most powerful people in the world.
However, there is perhaps an opening in which a strong movement could give the world the just recovery it needs and the chance to really “build back better.”
Ben Tippet is a researcher and author of Split: Class Divides Uncovered.
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