The IMF asks the Government to delay the rise in VAT and diesel

Partial but profound amendment to the Government Budgets. This is what the International Monetary Fund did this Friday when it warned that this is not the time to raise VAT on sugary drinks or diesel, since they are taxes that have “a disproportionate effect” on the lower-income population. In the Fund’s opinion, the increase in these taxes should wait until the recovery is firmly established. In addition, this tax tightening should be accompanied by effective spending measures to protect the most vulnerable.

Andrea Schaechter, head of the IMF mission in Spain, elaborated on the question: although the country needs to strengthen tax collection by increasing revenue from VAT, special levies and green taxation, he also believes that timing must be measured very well. , given that some of these fiscal figures can have damaging effects on the sectors (social and activity) that are now more affected by the crisis, so it is convenient to delay their increase. He referred in particular to precautions against raising reduced or discounted VAT rates. This, in a context in which the pandemic has exacerbated social inequality in the country.

On the other hand, other tax measures are more to the liking of the agency, which “welcomes” fiscal efforts to improve fiscal progressiveness and the collection capacity of the system with the adjustments to personal income tax – in particular on individual savings. high-income companies – or with the tax on technology companies – or very profitable companies – that have been the winners of the pandemic, given the confinement and social distance measures that have had to be adopted to stop contagion.

Also in fiscal matters, the Fund considers that the deficit cut that the Government anticipates (of 3.6 points of GDP) is consistent with its own forecasts, although its composition is different: the Executive is more optimistic in terms of income and it also portends a more expansive spending plan than the one the IMF has in mind.

In terms of spending, Schaechter also expressed some prevention regarding the increase in pensions and salaries of civil servants, also included in the Budgets that are now in full parliamentary process.

The agency does not consider it advisable to acquire commitments to permanently increase spending, for example through the state salary bill or pensions, in view of the high structural deficit and the budgetary pressure that this imposes for the long term, given aging of the population.

But now he is in favor of maintaining the economic support measures until the recovery is settled. Although it advises that such policies be flexible, to adapt them to the evolution of events: as the pandemic mitigates, aid must increasingly focus on vulnerable social groups and viable companies, which will even have to support with capital injections.

The International Monetary Fund also considers that the growth prospects projected by the Government for 2021 are optimistic. The Executive, in his budget project, estimates a GDP expansion of 9.8%, compared to the 7.2% predicted by the Fund. According to this body, the discrepancies between its figures and those of Moncloa lie in the expected impact of the arrival of community resources. In this way, if the Spanish authorities foresee that the country will absorb an amount equivalent to 2.2% of GDP in European funds and assume a multiplier of 1.2 times, the Fund believes that the absorption capacity will be somewhat lower and will also be lower the multiplier effect, 0.8 times.

In addition, IMF technicians also warn of the possibility of a weakening of GDP in the fourth quarter of 2020, which would make it even more difficult to meet the growth target next year. Because, they warn, not only funds play an important role in shaping the recovery, the evolution of the pandemic is also decisive. Although they also admit that the strength of the third quarter (GDP grew at a quarterly rate of 16.7%) may lead to the contraction in 2020 as a whole being somewhat lower than that reflected in their forecasts (-12.8 %).

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The IMF asks the Government to delay the rise in VAT and diesel

Partial but profound amendment to the Government Budgets. This is what the International Monetary Fund did this Friday when it warned that this is not the time to raise VAT on sugary drinks or diesel, since they are taxes that have “a disproportionate effect” on the lower-income population. In the Fund’s opinion, the increase in these taxes should wait until the recovery is firmly established. In addition, this tax tightening should be accompanied by effective spending measures to protect the most vulnerable.

Andrea Schaechter, head of the IMF mission in Spain, elaborated on the question: although the country needs to strengthen tax collection by increasing revenue from VAT, special levies and green taxation, he also believes that timing must be measured very well. , given that some of these fiscal figures can have damaging effects on the sectors (social and activity) that are now more affected by the crisis, so it is convenient to delay their increase. He referred in particular to precautions against raising reduced or discounted VAT rates. This, in a context in which the pandemic has exacerbated social inequality in the country.

On the other hand, other tax measures are more to the liking of the agency, which “welcomes” fiscal efforts to improve fiscal progressiveness and the collection capacity of the system with the adjustments to personal income tax – in particular on individual savings. high-income companies – or with the tax on technology companies – or very profitable companies – that have been the winners of the pandemic, given the confinement and social distance measures that have had to be adopted to stop contagion.

Also in fiscal matters, the Fund considers that the deficit cut that the Government anticipates (of 3.6 points of GDP) is consistent with its own forecasts, although its composition is different: the Executive is more optimistic in terms of income and it also portends a more expansive spending plan than the one the IMF has in mind.

In terms of spending, Schaechter also expressed some prevention regarding the increase in pensions and salaries of civil servants, also included in the Budgets that are now in full parliamentary process.

The agency does not consider it advisable to acquire commitments to permanently increase spending, for example through the state salary bill or pensions, in view of the high structural deficit and the budgetary pressure that this imposes for the long term, given aging of the population.

But now he is in favor of maintaining the economic support measures until the recovery is settled. Although it advises that such policies be flexible, to adapt them to the evolution of events: as the pandemic mitigates, aid must increasingly focus on vulnerable social groups and viable companies, which will even have to support with capital injections.

The International Monetary Fund also considers that the growth prospects projected by the Government for 2021 are optimistic. The Executive, in his budget project, estimates a GDP expansion of 9.8%, compared to the 7.2% predicted by the Fund. According to this body, the discrepancies between its figures and those of Moncloa lie in the expected impact of the arrival of community resources. In this way, if the Spanish authorities foresee that the country will absorb an amount equivalent to 2.2% of GDP in European funds and assume a multiplier of 1.2 times, the Fund believes that the absorption capacity will be somewhat lower and will also be lower the multiplier effect, 0.8 times.

In addition, IMF technicians also warn of the possibility of a weakening of GDP in the fourth quarter of 2020, which would make it even more difficult to meet the growth target next year. Because, they warn, not only funds play an important role in shaping the recovery, the evolution of the pandemic is also decisive. Although they also admit that the strength of the third quarter (GDP grew at a quarterly rate of 16.7%) may lead to the contraction in 2020 as a whole being somewhat lower than that reflected in their forecasts (-12.8 %).

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