An OECD blog post on 3 September 2020 noted that countries have generally acted quickly to limit the economic consequences of the COVID-19 crisis, introducing fiscal packages of various sizes focusing on income support for households and businesses. As the crisis has continued countries have extended support measures and have also begun to introduce measures aiming to bring about economic recovery.

The economic recovery will not be smooth and there is a danger of a second wave of infections with further lockdowns and restrictions on movement. Policy flexibility will therefore be needed to help businesses regain confidence. The blog suggests that the available fiscal tools should continue to be used in supporting businesses and households, with supportive fiscal policy to aid recovery. The measures will need to be well targeted and must be phased out as the economic situation recovers.

When the economic recovery is well established governments should look at structural reforms; but acting too early may endanger the recovery. Structural reforms should aim to make the economy more environmentally friendly and inclusive. The crisis has also revealed structural weaknesses that should be put right to ensure less vulnerability in the future.

In relation to environmental tax the blog post notes that tax reform in this area should be a priority. Taxes on pollutants are not currently high enough to encourage the required shift to clean energy. Around 70% of carbon emissions in the advanced and emerging economies are not taxed at all and there is insufficient taxation of the fuels that cause the most pollution. Carbon emissions can be restricted by changes to taxation combined with state subsidies and investment.

The COVID-19 crisis has also highlighted inequalities as low-income groups, women and young people have been affected more by the economic consequences of the crisis. Part-time and temporary workers and the self-employed have also been hit hard. Governments will need to consider strengthening the social protection of these groups in future.

Governments will need to raise more tax after the crisis to restore public finances. To increase consumption taxes and tax on labour may be difficult politically and undesirable from the point of view of equality. Alternative sources of income will need to be found and governments should consider the taxation of property and personal income from capital, assisted by the networks of agreements on transparency and exchange of tax information.

The blog post notes the importance of multilateral cooperation in the economic recovery. In addition to international cooperation on the exchange of information there is also an international initiative on taxation of the digital economy. The need to restore public finances is an incentive for multilateral cooperation on this OECD initiative. International tax cooperation can also prevent the escalation of trade disputes that could harm the global economy.