IMF-Japan High level Tax Seminar for Asian Countries
Closing Remarks by Mr. Shinohara, IMF Deputy Managing Director
“Emerging Taxation Issues in Asian Countries”
February 3, 2012
We have come to the end of a very busy four days. The conference has covered a wide range of important topics, and I am happy to hear that your discussions have been lively and constructive.
The importance of sharing experiences on current tax issues needs no emphasis. Indeed, these days fiscal policy is at the heart of economic policy debates around the world. As the updates to the IMF’s World Economic Outlook and Fiscal Monitor—both released last week—point out, one of the most immediate global policy challenges is to address medium-term fiscal imbalances while being careful not to kill growth. This is not easy: in the words of the Fiscal Monitor, “as downside risks rise, fiscal policy has to walk a narrow path”.
What does that mean? In a number of countries, particularly in some of the advanced economies, deficits and debt need to be brought down over time. Most advanced economies are planning significant fiscal adjustment this year, in an uncertain economic environment. Some advanced economies will have no choice but to stick to their deficit targets this year even if growth slows, but most should avoid further tightening and let the automatic stabilizers operate. Those with more space should reconsider the pace of near-term adjustment. But this needs to be complemented by credible medium-term deficit-reduction plans and by reforms that can stimulate growth. And tax policy is an important instrument in both of these respects.
Against this wider background, the seminar has covered an impressive and diverse set of topics in taxation. Let me briefly touch on 3 of them.
FIRST: Revenue mobilization
This is an important issue for countries that have used up their fiscal space in fighting the crisis and that need to rebuild their buffers. Also, increasing revenues to finance much-needed infrastructure and social spending remains a key challenge in many emerging and low-income countries. The conference gave us insight into different country experiences and various ways to mobilize tax revenue through both policy and administrative reforms, including by combating tax evasion. While one size does not fit all, clearly all countries have much to learn from each other’s experiences.
Inequality is a serious concern that needs to be reflected in the formulation and implementation of tax policies. It is important, in particular, to protect the poor from the impact of fiscal consolidation, and to resist pressure groups and special interests seeking to change tax systems to their own advantage. It is also important to ensure that the benefits of growth are fairly distributed.
One conclusion from your discussions on this issue was the need to look at expenditure policies, along with tax policies. Indeed about two-thirds of the redistribution that takes place in advanced economies comes through government spending, and not through taxation. It is therefore important to design social benefits that protect the poorest and most vulnerable in the most cost-efficient way.
It is also important to recognize that there are many dimensions to inequality that fiscal policy can affect. There is inequality across countries, and between regions within the same country. And there are cases of massive intergenerational inequality that result from tax and spending policies. In Japan, for instance, those aged 60 or older are lifetime net beneficiaries from the tax-benefit system—their net benefits are estimated at around 40 million yen; future generations, however, are set to be losers by about the same amount. These and other inequities can challenge fiscal sustainability and social inclusion.
THIRD: Climate financingThe advanced economies, as you know, have promised to mobilize substantial sources to finance mitigation of, and adaptation to, climate change in developing countries. When, last year, the G20 asked the IMF for ideas on where the public component of this financing might come from, we suggested two possible sources.
The first is broad-based carbon pricing, whether in the form of a carbon tax or emissions trading with auctioning of allowances. Getting carbon prices right is crucial if market signals are to work properly. And adequate carbon pricing can help mobilize private finance for combating climate change, or for other socially valuable expenditure. Of course we recognize the difficulties that countries face in adopting such schemes—for example, sensitivities to higher energy prices—but there are ways to help address these difficulties, as discussed in the IMF’s report.
The second possible source of climate financing is carbon charges on the use of fuels in international aviation and maritime activities. The economic case for such charges is strong: they are a large and rising share of emissions; they are outside the scope of the Kyoto protocol; and they are currently untaxed. However, there are real challenges to overcome. For example, these charges would have to be imposed on a very wide range of countries to limit avoidance. Also there is a risk that these measures could harm vulnerable developing countries by raising their trade costs. But, again as set out in the IMF’s report, there are ways to address these problems and make this climate financing option viable.
In closing, I’d like to thank our co-host, the Japanese Ministry of Finance, for its generous support to the conference. This annual conference has become an important part of our engagement with the region and I hope that, with the continued generous support of the Japanese authorities, we could have another similar event next year.
I would also like to thank the staff of the Fiscal Affairs Department and Regional Office for Asia and the Pacific for their efforts for making this conference possible. I also thank the delegates from Australia, Hong Kong, and Singapore, and other international and regional organizations for volunteering to participate in the conference to share their experiences with other participants. Of course, I thank all participants for your active participation in the discussions over the past four days.
With that, I wish all of you a safe journey home and look forward to seeing colleagues from the region here again.