1. EXPANDING FISCAL SPACE FOR SOCIAL SPENDING
What is meant by fiscal space ?
Why we need fiscal space
Eight ways to expand fiscal space
Your feedback

2. 1. What is meant by fiscal space ?
‘room in a government’s budget that allows it to provide resources for a desired purpose without jeopardizing the sustainability of its financial position or the stability of the economy’ (Heller, 2005)
But to a considerable degree the amount of fiscal space available is in the eye of the beholder…… due to different views about what is sustainable…..
Aim of presentation to explore maximum possible while still keeping finances sustainable and economy stable .

3. he Commitment to Reducing Inequality Index
Partnership between Development Finance International and Oxfam International
Index contains 152 countries
Seven thousand data points
Input from 82 Oxfam offices
Input from external experts at IMF, World Bank, ILO, OECD and other expert agencies.
Input from country government officials on latest spending, tax and labour data and policies
Annual index, report, digital online tool
Launched 17th July 2017 in New York

4. 2. What are we measuring?
Mention EU commission audit.

5. Excise and Customs Duties
Women’s labour rights
Union rights
Minimum wage
Social protection
Personal income tax
Excise and Customs Duties
VAT
Health
Education

6. Spending [S]

7. Spending on public services (health and education) benefits the poorest most
Source: Seery.E., (2015), “Working for the many”
Social protection and inequality
“In OECD countries, social protection schemes tend to be much larger and have been shown to reduce inequality by as much as 30%.”
OECD, 2011, “In It Together”

8. S.1 Collect data on spending by sector
Source: Government Spending Watch, online data portal

9. S.2 – Incidence of social spending
CEQ Analysis: Social spending as % GDP vs redistributive effect
Source: CEQ study on Uganday, November 2016

10. S.2 – Incidence of social spending

11. Tax [T]

12. T.1 Collect data on VAT, CIT and PIT
Source: EY Global Tax guides

13. T.1C For PIT - The Adapted Kakwani
Term measures rate of change of the tax rate as income levels increase
Threshold measured as a ratio of GDP/capita
MIN Threshold ($)
MIN Threshold ratio
MIN Tax rate
MAX Threshold ($)
MAX Threshold ratio
MAX Tax rate
Country X
10,000
0.40
20%
100,000
4.00
30%
Country Y
50,000
2.00
200,000
8.00
60%
DIFF rates (%)
DIFF thresholds
KAKWANI
KAKWANI.2
KAKWANI.3
RESCALED 10
3.60
278% 1
0.33
0.00 40
6.00
667% 4
1.00

14. T.2 Incidence of different tax types
Source: CEQ study middle income countries, (2016)

15. T.2 Incidence of different tax types
Source: Price Water House Coopers

16. T.3A Productivity of different taxes
Based on prevailing tax rate, how well does the government do at collecting the taxes that are due?
Source: Price Water House Coopers

17. T.3B Estimating the effort compared to potential
Based on economic fundamentals, how well does the government do at collecting the taxes that are due?
‘Potential’ tax revenue is a function of:
GDP per capita [+ve]
Trade openness (imports plus exports) [+ve]
Agriculture as a share of economy [-ve]
Education level (Public expenditure on education) [+ve]
Income inequality (Gini) [-ve]
Inflation (CPI) [not sig]
Corruption (CPI) [-ve]
Source: Understanding Countries’ Tax Effort; by Ricardo Fenochietto, Carola Pessino; IMF Working Paper

18. Labour [L]

19. L1. Labour union rights
Source: PennState,

20. L.2 Women’s rights and gender equality

21. L.3 Minimum Wages

22. L.X Deflated for unemployment/informal sector
Currently deflating by unemployment level using ILO data as unemployed do not have rights/minimum income levels
Also by share of informal sector in economy (World Bank) as those in informal sector don’t get rights either, but for 2018 switching to share of “vulnerable” employment as most in vulnerable employment (gig economy, self-employed, temporary workers don’t have rights)
Source: World Bank, (2011),

23. 3. Overall Key Findings and Messages
Three quarters of governments are doing less than half of what they could be doing (what the best performers are already doing) on average across all indicators
Sweden, Belgium and Denmark top the index, with relatively progressive spending, tax and labour policies.
Bahrain, Myanmar and Nigeria are at the bottom. They have very low levels of social spending; extremely bad records on labour and womens’ rights; and tax systems which overburden the poorest and fail to tax the wealthiest
Nobody is doing everything they could – even the top performers could be doing more (eg Sweden on progressive taxation – only 120th - and a national minimum wage)
Richer countries tend to do somewhat better, but some eg the US do really badly compared

24. 3. Overall Key Findings and Messages
Richer countries tend to do somewhat better, but it is not at all a story of “rich country good, poor country bad”, in spite of the availability of far greater resources to fund spending and wages, and greater potential for tax collection in wealthier countries.
One in Four of the top 50 are low or middle income countries. Eg Liberia and Sierra Leone are near the top on minimum wages ...You dont have to be rich to make progressive policy choices
Also no simple relationship between commitment to reducing inequality and levels of inequality:
For example, Namibia was the most unequal country in the world, realised this and designed its development strategy around reducing inequality, massive steps forward on education, social protection, wages but still 4th worst

25. 3. Overall Key Findings and Messages
Major lack of data – many countries we would have liked to include especially in Middle East but could not due to lack of information on policies to fight inequality – no coincidence that these are also often the countries with the highest inequality !
Data also missing on key aspects of policies for virtually all countries - eg degree to which spending and tax fight gender inequality, spending on pro-poor agriculture etc
Huge investment is needed in data on inequality and also on policy measures to fight it worldwide (at national and global level) – as part of the Sustainable Development Goals monitoring - will also help improve the index
Richer countries tend to do somewhat better, but some eg the US do really badly compared

26. 3. FINDINGS – UNITED STATES
US does poorly among comparable (OECD) countries – 21st of 35 and rock bottom among the G7
Particularly poor on labour – 37th, behind countries like Argentina and Romania, due to minimum wage falling behind inflation, poor respect for labour rights and virtually no parental leave
Somewhat better on taxation (26th) –system looks reasonable on paper but in practice much less progressive, due to massive tax dodging by wealthy and corporations
On spending, 25th but this is inflated by spending which is very poorly oriented to reducing inequality – eg education/health

27. 3. FINDINGS – UNITED STATES (2)
Index useful as clear indicator of priorities (no surprises) – increase minimum wage well above inflation, defend union rights, improve leave policies, close tax loopholes and combat tax dodging, and invest more in genuinely progressive spending (esp education and cash transfers)
But also used index to test possible impact of Trump spending cuts, and tax policy changes (building on work of TPC and others)
Results:
US falls sharply in the CRI to 29th among OECD countries
Tax rank falls from 26th to 59th, spending 25 to 29

28. THE WAY FORWARD (subject to funding)
Annual update, launched at BWI Annual Meetings
Analysis of trends – already seeing impact of rowing back in eg Argentina, Brazil; but also of more progressive policies in Chile, Indonesia
Expand coverage of countries to 175+
More transparency and web-based data for greater accountability
Strengthen CRI eg: wealth taxes, policy transparency, structural factors eg land or finance, more “horizontal inequalities” (LNOB), government capture, CSO space – currently choosing priorities

29. 5. Your feedback Does the Index add value to current knowledge?
What's missing/could be improved in terms of: indicators, analysis, policy dimensions – especially those which would be useful for US policy discussions
How can the index best be used in the US and in developing countries as a powerful advocacy tool to change policies to fight inequality better ?