Transcript

Washington, D.C.
October 9, 2013

Michael Keen, Deputy Director, FAD
Martine Guerguil, Deputy Director, FAD
Simonetta Nardin, Senior Communications Officer, COM

MS. NARDIN: Good morning. As you have seen, this issue of the Fiscal Monitor, in addition to the standard discussion of fiscal global developments, is also on the role taxes can play in strengthening public budgets. Therefore, Martine Guerguil will offer a brief overview of the first part of the Monitor, and Michael Keen will follow-up with a brief overview on the chapter on the role taxes can play.

MS. GUERGUIL: Thank you, Simonetta, and thank you, everybody, for being here. As Simonetta said, I will start discussing the recent fiscal developments and the fiscal outlook, summarizing what is in the Monitor. We see basically two main trends in the fiscal developments since we published our last Monitor six months ago.

And, these trends can be nicely captured in the evolution of our index of fiscal vulnerabilities. This shows the evolution of the index of fiscal vulnerabilities for advanced economies. As you can see, the vulnerability has increased quite sizably with the crisis, but for the past year they have been declining thanks to sizable fiscal adjustment. The debt ratio now on average for advanced economies has stabilized, so we say we are comforted but not yet comfortable in that respect since the index of risk is still relatively high.

With respect to emerging economies, what we see, these economies started in a much stronger position, or entered the crisis in a much stronger position than advanced economies, but what we have seen over the past year or so is an increase in their fiscal risks. In fact, due to a number of factors that I will discuss in more detail.

So, in many ways what we see the fiscal level is in line with the growth dynamics that Olivier Blanchard discussed in the presentation of the WEO yesterday. Let me elaborate briefly on the two trends.

I will start with emerging economies that is, in many ways, where the most notable change has occurred.

Why are fiscal risks increasing for emerging economies? We would say there are basically two main factors. One relates to the environment they face in terms of growth prospects and of borrowing costs.

For growth, well, this chart will show you that the growth that we projected for the main emerging market economies in 2011, the growth we project now in all cases has gone down. The matching evolution in terms of spreads is that they have increased. This shows you the spreads that were observed by emerging market regions in 2011, and what we have in all cases is an increase in spreads, which is large in the case of Asia and in the case of Middle East and North Africa. That is the first factor.

The second factor is that their fiscal fundamentals, their levels of deficits and debt, have deteriorated. The deficits have widened and the debt has increased. This chart will show you the same. This is the projection for the deficit that we made in 2011, and this is where they are now. In all cases, an increase. And for the debt, this is the projections we made for debt and this is where we are now. Here, again, in all cases an increase.

We have these two factors that contribute to an increase in fiscal risk. What we should say is that for emerging markets there is a significant degree of heterogeneity across countries. This is the standard chart that we tried to present to evaluate fiscal risk. On the horizontal axis you have the debt-to-GDP ratio and on the vertical axis the cyclically adjusted primary deficits.

The color increases or becomes redder as both the deficit and debt increases. What you see in the top right quadrant, in red, all countries that have high debts and high deficits. There are a few of them, unlike the case of advanced economies, which you would have a higher group in this quadrant, but the thing that we want to notice is that the orange part, where at least one of the indicators is high, the number of countries in the orange quadrant has increased, particularly in the top left quadrant where you have a large number of countries that have had significantly increasing deficits.

Now, part of this is due to the stabilization efforts they did to mitigate the impact of the global slowdown in response to the crisis, but since they have not narrowed the deficits since then, they are left without much what we call fiscal space or scope to use fiscal policy going forward.

What this implies in terms of the fiscal advice we would give to emerging economies in the fiscal area is that basically they have much less scope and certainly have to exercise more caution. The countries with high debts and high deficits have certainly not much choice but to adjust, and in some cases consolidation efforts must be large.

Some countries may have more space, particularly if they have, say, lower interest rates or lower borrowing costs. This is the case in particular of India which has relatively low domestic interest rates on its government security. But, , given the very limited fiscal space and the uncertainty in the environment, these countries certainly have to begin to embark on a process of fiscal consolidation. This, again, is a relative change in the circumstances that justifies the change in the policy advice we would give.

Now, let me go quickly to advanced economies.

In advanced economies, as I said, not the main news, more a continuation of the main news, it is that fiscal consolidation is proceeding. This yellow bar shows you the change in the structural primary balance in the advanced economies between 2009 and 2013. In all cases it is quite a significant advance, an overall average consolidation of 4 percentage points of GDP. The only exception as you see here is Japan. Japan, in fact, had a widening fiscal deficit. This is in part due to the response to the 2011 Tsunami. And we certainly know the Prime Minister Abe has announced recently an increase in the consumption tax that will begin to implement some very much needed consolidation path for Japan.

But overall, and excluding Japan, the important point to make is that the significant adjustment goes a significant way toward meeting what we assume are the adjustment needs of these economies, how more adjustment they need to make to begin bringing their debt ratio on a downward path.

The flags show you what are the medium-term consolidation objectives of these economies. You see, again with the exception of Japan, these countries are quite well advanced. We consider on average about 60 percent of the adjustment has been done.

Now, what does this imply in terms of the policy advice?

Well, most of the adjustment in terms of size has been done, but to be able to bring debt ratios down significantly, given the debt ratios are quite high at the moment, these countries will have to maintain primary surpluses for some years and a significant period of time.

When we compare these to the historical evidence what we find is that maintaining surpluses for some time is in fact quite difficult. And, it will likely be more difficult in cases where growth is not very high, which is unfortunately the case at the moment in Europe. It will also be more difficult if the effort is conceived as not being shared in a fair manner. This obviously puts a premium on the composition of the consolidation path, and particularly on the role that tax reform or tax measures could play in that process.

This takes me to the section that Michael will discuss.

MR. KEEN: Thank you. I'll talk about Chapter 2 of the Monitor. Tax systems over the last few years have been going through some pretty tough times. So what we try to do here is take a look at where the tax systems are now and where they should be going, where they might be going. We have really four main messages, four main topics. One question we ask concerns the quality of the measures taken. The advice given for the consolidation phase by the Fund and others was quite straightforward: Broaden bases before you lower rates; tax consumption rather than labor; think about externality correcting taxes; carbon pricing; and strengthen or improve the taxation of the financial sector.

So, how have advanced economies done relative to this advice since 2010?

Well, pretty much everybody has increased excises which are taxes on things likes cigarettes and drink. That is what everybody does first when they need money. In terms of the VAT we see there are noticeably more countries that have increased the rate rather than expanded the base.

Social security contributions: quite surprisingly we have a fairly significant number of countries that have actually increased social contribution rates, counter to their presumption that we don't want to tax labor in these particular times.

Property tax, which we have also been recommending, is a particularly efficient and potentially progressive form of tax, there has been some action but really not that much in terms of strengthening it. A fairly mixed picture in terms of both base broadening and rate increases on the personal tax. And interestingly, on the corporate tax we actually see rate reductions, reductions in the statutory rate, which was a trend before the crisis, continuing, perhaps less rapidly.

So, this leads us really to, be somewhat disappointed with the quality of measures. I should say there are exceptions. Portugal is an example of a country that has managed to do significant VAT base broadening in difficult times, and we're also pleased to note that about 13 countries have now adopted a kind of tax essentially on banks' wholesale borrowing, which the Fund was recommending basically three years ago. So there have been positive developments, but overall we think our advice and that of others has been honored more really in the breach.

A second issue we look at is whether there is scope to do more, could we raise more on the revenue side?

Clearly there is no right size of government. That will depend on country circumstances, social preferences. But what we can ask really is essentially as a technical matter is by comparing each country to others that are like it, to ask whether it would be possible to raise more revenue in a technical sense. What we develop in the Monitor is a kind of a score of the effort that countries are making from zero to 100, where 100 is essentially the maximum effort in terms of raising revenue we think you could make given what other countries like you are doing.

What we find, I think, it's a somewhat mixed picture, but certainly for many of the countries to the right of the screen, many countries are above the median, the high median of 75 percent, but the median effort seems to us quite high, suggesting relatively little scope to do more for these countries on the revenue side. But on the left of the screen on the other hand some of the countries that have the lower effort could meet a large part of their estimated consolidation needs calculated, along the lines that Martine described, by increasing the effort by a fairly moderate amount.

In turn we also produce these estimates for emerging and low-income countries where again effort is actually fairly high but we again see scope for raising more. If we think about low-income countries, for example, if we take the low-income countries below the median effort for that group, they could raise about 3.5 points more of GDP by moving to the median which is quite a large amount in terms of their development needs.

A third topic we look at, international taxation, a very topical subject in the Monitor. First point, of course: this is terribly complex, so don't worry, I'm not going to try to explain this slide. The point is really how hard it is to explain it. Although, once you have read the Monitor this will be obvious, how you tax plan in this way, as we provide a little guide to tax planning.

But we make really two points in relation to the current international tax issues. One is we're very keen to stress the importance of these issues for developing countries. The initiatives are very much led by the advanced economies and some of the emerging countries, but in terms of the importance of revenue, a lot of these issues are especially important for developing countries. We come across cases in our technical assistance where the amount of revenue at stake through the international avoidance by multinationals is in the order of 10 or 20 percent of total revenue, so these are big amounts. They may be relatively small absolute amounts, but for many countries they're very big relative amounts in terms of their taxation. These countries are typically more reliant on corporate tax than developed, advanced economies anyway.

A third question we spend quite a lot of time on is the issue of progressivity and fairness in the tax system. And a first point there is that tax systems have become noticeably less progressive over the last few years, since about the start of the 80s. If we look at the ratio of direct to indirect taxes where we think of direct taxes as income tax that is more redistributive than perhaps indirect taxes, we could discuss that more, but this has clearly gone down. Less reliance on direct taxes, more on indirect in both advanced and even more notably in the emerging economies.

If we think about what has happened to top marginal rates of tax, if we compare those in 1980 and 2012, essentially those have fallen quite markedly everywhere except Switzerland, I believe.

So we have a big reduction in progressivity. And at the same time in the background, of course, we have had a large increase in inequality, particularly Anglo-Saxon countries, particularly for the very rich.

So naturally, we think, given the decreased progressivity, increased inequality, the general pain of consolidation and the sense if we want to make sure the burden of the adjustment is fairly shared, we ask, well, does the evidence suggest that the top income earners could actually pay a little more tax if we raised their marginal tax rates? So what we compare here is for a range of countries, this is where we estimate the revenue-maximizing, top tax rate would lie. For each country, if you wanted to simply maximize revenue from the top group, the marginal rate you would set is somewhere within these blue lines. That is what we estimate. And then we can compare that with where the top marginal rates currently are. And these are, you can see in many countries, not all by any means, but many countries the dot is below the blue range suggesting that there is in principle, if you wanted to, scope to raise more by raising marginal rates on the rich. Of course, a separate question is whether you should do that, whether you want to do that. That is a kind of social judgment and we talk a little bit in the Monitor about how one might go about thinking about that issue.

We talk, too, about property taxation in this context. That seems to us an area where there is clear scope for strengthening in many countries and raising more revenue in a fair way. We also look more contentiously at wealth and wealth taxes which have been on the decline for many years, but if we look at the numbers, there is clearly a large revenue potential. On the other hand, there are various implementation issues and possibilities that we discuss in the Monitor.

And finally, let me just say a word, we do look at the political economy of tax reform, how to make good tax reform happen, concluding that there is no silver bullet. Recent experience confirms hard times are not always good times for tax reform, but, on the other hand, the experience we look at point to a couple of important points. One is the importance of transparency, but also beyond transparency in terms of the costs of those exemptions, communication, communication of objectives and achievements of tax reform, and not least convincing people that the money that they give to the government is going to be well spent, this link between the tax and the spending sides of the government.

Thank you very much.

QUESTIONER: The IMF praised yesterday Brazilian monetary policy. Here in the Fiscal Monitor the Fund says Brazil should adopt a fiscal consolidation to put gross debt to GDP on a firm downward path. To what extent are you worried that Brazilian fiscal policy and the allowance to public banks?

MS. GUERGUIL: As you know, the Brazilian authorities have used fiscal policy to mitigate the impact of the global slowdown on their economy, and they have used it in different ways. And, one of them effectively has been to facilitate lending by public banks. These are operations that are not included in the general government balance sheet and therefore it is a little bit difficult to assess how much effectively has been done, and how effective this lending has been. So, one of our main advices has been to effectively incorporate these operations in the fiscal reporting and to have a better idea of what is the costs and effectiveness of these policies. This is with respect to specifically public lending.

More specifically in the case of Brazil, as I said, the authorities have used fiscal policy quite importantly in the past years, and this is certainly one of the countries in which the fiscal risks have been increasing recently, and we do think that as growth begins to recover in the case of Brazil it will be particularly appropriate to embark on a number of fiscal reforms that would facilitate an increase in potential growth, and certainly an increase in efficiency of public spending.

QUESTIONER: A dazzling array of charts, but sorry, as I understood it or misunderstood it perhaps there has been an improvement in fiscal balances in many countries, even low growth countries. So, what has been behind that? And to what extent are easy monetary policies linked to an improvement in fiscal balances? And likewise, if monetary policy begins to tighten or taper, does that imply fiscal balances will deteriorate?

MS. GUERGUIL: There has been a moderate improvement in the fiscal balances of a number of emerging market economies. The point is that they have not rebuilt the buffers or the deficit has not gone back to the situation that they had before the crisis.

There are two factors. Obviously the factors differ across countries, but there are two important factors. One is the commodity boom. Many of these countries export commodities, and as we all know the demand for commodities and the prices therefore have been quite positive. And their budget situations, in many cases, has benefited from that.

The second factor, as you said, is the relatively easy financial conditions. As the interest rates in the advanced economies went to very low levels, a number of investment opportunities were seen in emerging markets where interest rates were higher.

Now, there is an increased risk of a downturn in both factors now. If global demand, and particularly demand in Asia and in China in particular, slows down, there is a possibility that commodity prices would certainly stop increasing and demand may stall to some degree. At the same time, the reversal of easy monetary policy in the advanced economies will lead to an increase in interest rates, and therefore an increase in borrowing costs, which is why the fiscal space or the fiscal conditions going forward are certainly going to be less easy or quite likely going to be less easy than they were, which justifies our slight change and call for more caution for emerging economies.

QUESTIONER: My question is related to China. If similar stimulus like seen this time in June is needed in the future given the low level of central government debt level and high credit in GDP, should Chinese government use more fiscal capacity to do it, or rather than credit expansion to the banking sector?

Secondly, in recently opened Shanghai pilot Free Trade Zone(FTZ), do you see any tax system reform in China?

MS. GUERGUIL: On your first question, China is going through, as my colleague said before, a transition that is quite important and relatively delicate, which is to transition from an economy where growth was essentially based on export demand and investment, to a more balanced and sustainable growth that will be based essentially more on consumption and domestic demand.

The authorities have begun to have policies that support that transition, even if at the moment this has come at the expense of somewhat lower growth. Still, the growth prospect for the Chinese economy would still be the envy of many economies in the world.

Now, of course, this delicate transition also requires delicate rebalancing of policies. In the past, in response to the global slowdown, the Chinese economy did use quite actively fiscal policy, mainly through investment as you mentioned.

The rebalancing, together with the change in the international context, would justify certainly a more careful use of these instruments. We think that in the current situation, more active stimulus should be considered only if growth really were to decline well below the targets that the authorities now have. And we also think that fiscal policy, even if it doesn't include stimulus, should be rebalanced to support more consumption, and through in particular strengthening of the safety net. Again, the authorities have begun to move in that direction.

MR. KEEN: Perhaps I could speak up briefly on the tax reform questions for China. Just to mention we take note in the Monitor of the increase in progressivity of the income tax in China in recent years.

As a general point on the free trade zones, and again just a general observation, and we haven't seen the details, there is always a risk with free trade zones that they can erode the tax system outside the trade zones. So I think it is important when one designs these trade zones to make sure the domestic taxes is insulated from some of the avoidance devices that these create, which relates a little bit to some of the international tax schemes, as well.

QUESTIONER: A question on the tax side, and the fiscal side. It seems like you are almost suggesting a rotation of austerity from the developed world to the emerging world, and I'm wondering if that is really what is afoot here, that they spent up during the crisis and now they have to get a grip on that?

On the tax side, I want a little more information on this revenue-maximizing tax rate. Is that some model that is built around taxation up to a point where people don't start quitting work because -- etcetera.

MS. GUERGUIL: I am sorry if you thought it was a rotation of austerity, because I don't think we would go that way. Again, there are relatively few emerging countries that would have to embark on very ambitious austerity creating fiscal consolidation. What we tried to say is more that up to now advice has been that there was significant fiscal space in emerging economies and that they have in fact used this fiscal space to mitigate the impact of slowdowns and ups and downs before. Our word is more of caution, that as their prospects are weakening they have much less space to do that. And although they could do an emergency situation, it would be more important since they're still growing at a relatively clipped pace it would be more important for them to focus on rebuilding their fiscal buffers now. Therefore, it is not a path of austerity. It's more of reining in, in some cases, the spending, and more also, take advantage to introduce some reforms that have not been introduced, and that they will need going forward over the medium term to face growing demands in terms of enhanced public services, pensions and the like. So I would certainly give that advice.

MR. KEEN: On the way we're calculating the revenue-maximizing rates, we are recognizing that if we increase the marginal rates at the top that may lead people to work less, to earn less. It may also induce them to find ways to avoid tax, to use tax shelters of various kinds. So what we build into the model is an estimate of the responsiveness of the highest income groups on both those margins. It takes account of both changes in pre-tax income and changes in avoidance behavior. That is the kind of margin of response we're playing on.

What is driving the results is really two things. One is the response assumption that I have just described, the other one is just a kind of a mechanical feature of what the distribution of income looks like at the very top. So it is really those two things that drive the results.

QUESTIONER: Do you assume there are tax avoidance behaviors specific to each country, or do you assume it is normal across all the nations you studied?

MR. KEEN: It varies. Where we have studies for countries, we use those. Where we don't have studies for those countries, we essentially use numbers from elsewhere. And the place where this has been most studied is certainly the U.S., that is where the strongest work has been done. I should say, too, there is an element of contention about these numbers, as well, but this is our take on what is in there.

MS. NARDIN: And, to stay on the tax chapter of the Monitor and in the U.S., we have a question on line. Does the U.S. have any room to raise taxes on the rich, and if so which taxes should go up?

MR. KEEN: If you go back to the chart on the screen and is in the Monitor, comparing the top marginal rates where we think the revenue-maximizing rate would be, the answer from that would be yes, you could raise more revenue by increasing the top marginal rate. I should say in that picture, when you look more closely at the numbers, the rates here include not just the income tax, but it also includes social security contributions, as far as their paid. It also includes an estimate in relation to indirect tax, because in principle those would have similar effects. In terms of the exercise there, that does suggest you could raise more money, by increasing rates at the top. There are studies that come to rather different conclusions, but in terms of the results that we report that's true.

Of course, the other option is not simply to increase the rate, but to again broaden the base, to try and deal with avoidance devices and exemptions at the top. As I was saying in a more general context earlier, we would generally think of those as probably more efficient ways of going about revenues than raising the rates again, but we don't have numbers for that in the Monitor.

QUESTIONER: Two questions. First one about the financial transactions tax in Europe. I wonder if you felt that was an efficient form of taxation, and whether it would particularly fall on any particular country? Obviously, I have the U.K. in mind, given its large financial sector.

Secondly, going back to the question on marginal rates, the U.K. recently, as you know, reduced the top rate of tax from 50 percent to 45 percent, yet your graph shows there is plenty of room for higher taxation in the U.K. But, the U.K. Treasury's calculations seem to suggest that reduction would actually increase tax income rather than reduce it. I just wonder what you felt about that assumption?

MR. KEEN: To take the second one first, I think, as I mentioned, these are things that people can disagree about, it is just our best shot of what we think on our reading of the evidence. For the U.K. we particularly draw on the work in the Mirrlees Review, which looks at this in a lot of detail.

On the financial transactions tax, as you will remember, the Fund in its own view of taxing the financial sector has seen merit particularly in the kind of bank levies that I mentioned; we are pleased to see there has been a fairly quiet revolution in the adoption of these taxes, broadly the kind the Fund recommended. We certainly thought and argued that the financial activities tax has a clear rationale in terms of fixing problems to do with exemption under the VAT in a way that the financial transactions tax doesn't. We haven't particularly looked at the incidence of the financial transaction tax across countries, but I think again we are certainly interested to see how the debate comes out and we still hope that the financial activities tax will continue to attract attention.

QUESTIONER: Do you think Spain is among the countries which have room to increase taxes, or in this area is everything done in the Spanish case?

MR. KEEN: I think in Spain we certainly see scope to tax better. I think, for example, in terms of the VAT, we know that reliance on VAT is relatively low in Spain compared to some other countries. So that suggests to us that certainly in terms of the consumption there is scope to do more. And we also notice that Spain recently set up a commission to look at the structure of the tax system. And that is a dialogue that we hope we can contribute to at some point.

QUESTIONER: I have a question about the tax in Italy. Is there any room available in Italy to decrease taxes and does the Fund think that the abolition of the property tax is appropriate? And what about the discussion about the VAT in Italy right now?

MR. KEEN: I think as I mentioned certainly we see the property tax as having many attractions in many countries and we would include Italy in that. Many of the arguments for the property tax are precisely on residential properties, so we certainly have been supportive of the inclusion of first-owned houses in the property tax base. In fact, last year at the invitation of the Italian government we made some comments on the delaga fiscale which is now in parliament, and there we talk about the potential merits of the property tax. (IMU).

MS. GUERGUIL: If I may complement that. The VAT has been approved. There has been an increase.

With respect to the property tax, obviously I agree with what Michael said. It is also important, if it were to be repealed, to find other compensatory either revenue or spending cuts, because it is particularly important for Italy to maintain its targets of balancing its structural budget in the near term. We would think that the property tax effectively has a lot of merit, but if it were not to be put in place, or if it were to be repealed, it would be very important to find other compensatory revenue or spending cuts. We understand that the authorities are committed to do that, and we certainly encourage them to go in that direction.

MR. KEEN: One other thing, on the VAT in general, one of the things we do in the Monitor is to look at VATs in a range of countries because it is such an important tax instrument and try and look at the balance between raising revenue by improving policy and by improving compliance. And I think Italy is one of the countries where the suggestion is that the compliance is also an area where one could look for revenue from the VAT. Again, it is this point about looking to broaden bases and improve compliance, as well as to raise rates.

QUESTIONER: My question is, Egypt at the moment is having a difficulty in its economic recovery, as you can imagine. And there is a lot of talk about reinstating a more progressive taxation system in Egypt. The fear is on the other hand that this might slow down any chances for recovery, especially since the economy is deeply driven by FDI. My question is, do you think Egypt has enough space for progressive taxation? Would that be a good idea? And, what sort of increases do you see in that regard?

MR. KEEN: In terms of Egypt and a number of countries similarly placed, if I were to think about dealing with my fiscal problems in a way that improves fairness I would also think about subsidy reform and actually protecting the poorest, which may actually be, technically at least, a simpler way of improving genuine progressivity in the overall tax benefit system since you have to look at the whole thing together.

So I think in general we would be thinking of fairness as wider issue in many countries than simply the progressivity of the income tax. One would have to think about spending measures as well. I would think in many respects that might be an easier avenue for a number of countries to pursue, given that we know raising top rates can have problems in terms of mobility of income, capital income and these kinds of things, just as a general issue.

QUESTIONER: I used to write every time when the Fiscal Monitor came since the banking crisis this interesting report on your series, fiscal support for bank rescue. And you had a wonderful chart showing the net inputs of governments, because you would reduce the recovery. From a German angle it is very interesting because Germany had a bank rescue many years ago where we didn't have recovery because contrary to the U.S. and others we did not buy shares.

The question is, the series was then stopped. Where can I find IMF research? From the German ministry of finance I got a note that the IMF thought it was too controversial, so they did not go into the structure of the government's support for bank rescue. Maybe that is not true. Where can I find research in terms of a continuing of the recovery element into the rescue if you start with the banking crisis, let's say, 2008 or 2009?

MS. GUERGUIL: Table VII of the Fiscal Monitor gives you these data. It has always been there. We agree it is an important topic and certainly something in which we do intend to look into more detail going forward.

QUESTIONER: In the view of the IMF which European countries could slow their austerity efforts due to lagging economies?

MS. GUERGUIL: Well, a number of European economies are in fact slowing their efforts. As you know, the European Commission extended the deadlines under the excessive deficit procedure for a number of them and we certainly think that is quite adequate. But, the chart we saw before showed that some countries have already taken quite a significant chunk of adjustment. Most of these economies are in fact in Europe. And, so, they can certainly now slow down the pace. It doesn't mean stop the pace, because there is still some adjustment that has to be done. But, quite a lot of these economies, I will mention Spain has had an extension and in some ways France has. Many of these economies can have a somewhat slower pace of adjustment, and we think this is certainly appropriate. And, again, I would emphasize something that we said several times, it is quite important to sketch these adjustments in a medium-term framework to ensure the slower pace still converts to a reduction in the debt ratio over time.

QUESTIONER: I'm confused by the tax stuff, because in the past the IMF has tended to argue that the best way to do a fiscal consolidation is through spending cuts least damaging to growth. Yet, here you are suggesting there is lots of scope in quite a few countries for tax increases. So, has the IMF changed its thinking on all this?

Secondly, a specific question about the U.K., which on your tables has relatively high levels of property tax. Does that mean you think there is relatively little scope for further increasing property taxes in the U.K.? As you know, a potential mansion tax is a hot area of political debate.

MR. KEEN: On the first question, in Chapter 2, we're not talking about what the appropriate mix is. I think what we do is really start from the observation that the current consolidation phase has actually relied more on revenue than was expected and was planned in some sense and that has been a feature of many consolidations. What problems would there be if you did try to raise more on the revenue side? I don't think we're arguing that more should be done on the revenue side at all. I think we're trying to get some sense of what the space is. And we're trying to get a sense of how that varies across countries.

I think the spending side matters clearly. The next Fiscal Monitor looks at the spending side and I hope will bring the two together which is ultimately the question. So in that sense we recognize as a partial look, but nevertheless we think it is useful to know which of the countries seem to be near some kind of technical ceiling in terms of what other countries are able to do.

On the property tax one, as a general feature property tax revenues are higher for some reason in Anglo-Saxon countries than elsewhere, and I think we use that more as an indicator of what other countries might aspire to rather than making a recommendation on that level itself.

QUESTIONER: I just want to pose this in the right time frame. In the executive summary you say, in practice, most of the fiscal consolidation has been reliant on revenue measures, more reliant on revenue than was initially planned?

In chapter 2 you talk about trends. Is everything within the context of what has happened since the 2009 recession, pretty much?

MS. GUERGUIL: Yes, that is what we largely look at. The point effectively, that will echo what Michael said, among advanced economies, fiscal consolidation plans, the initial intent was to rely roughly on 30 percent on revenue measures, and what we find is that it comes closer to 40 percent, if we look back at what has been done. So, effectively, there has been a greater reliance on tax measures. As Mike said, this is quite common. That being said, the majority of adjustment still is on the spending side, has been on the spending side. And again, going forward, there is quite a lot to be done on the spending side, and again another commercial for the next Fiscal Monitor, that is what we look at.

QUESTIONER: The reason I ask is because, Mr. Keen, when you talked about trends, you said the decline in progressivity was since the start of the 1980s, which is not quite the same. It is a much larger framework.

MR. KEEN: In parts of the Chapter 2 we are looking at the longer term, somewhat longer term trends. What I was saying about the increases in equality, that's roughly the same period since the early, mid 1980s.

QUESTIONER: Can I finish, then? When you talk about closing the gap, you said for most of the advanced economies the greatest potential lies in indirect taxes. I notice you have like Ireland, Japan, Spain, Switzerland, but not the United States. What is the greatest scope for the United States?

MR. KEEN: I think that is essentially coming out of the empirical analysis where we're essentially taking the tax structure that a country has as given. I think if we look at the U.S., then, clearly, the question of whether there will be merit in a value-added tax, probably at Federal level, certainly comes up. We didn't mean to omit that from consideration in the U.S. I think that is just an implication of how the empirical work is done.

MS. NARDIN: Thank you very much. This concludes this press conference. Thank you very much.