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After COVID-19 crisis countries face significant fiscal challenges

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Governments have taken unprecedented fiscal action in response to the COVID-19 crisis, but countries will need to support economic recovery in the face of significantly increasing fiscal challenges, according a new OECD report.

Tax Policy Reforms 2020 describes the latest tax reforms across OECD countries, as well as in Argentina, China, Indonesia and South Africa. The report identifies major tax policy trends adopted before the COVID-19 crisis and takes stock of the tax and broader fiscal measures introduced by countries in response to the pandemic, from its outbreak to June 2020.

The report shows that while the size of fiscal packages in response to the COVID-19 crisis has varied across countries, most have been significant, and many countries have taken unprecedented action. It also points out that most countries have adopted a phased approach to COVID-19, gradually adapting their fiscal packages as the crisis has unfolded. Initial government responses focused on providing income support to households and liquidity to businesses to help them stay afloat. As the crisis has continued, many countries expanded their initial response packages. The most recent measures and discussions suggest that the recovery phase will be supported by expansionary fiscal policy in a number of countries.

With countries facing such high levels of uncertainty, policy agility will be key and targeted support measures should be maintained as long as needed to avoid scarring effects, according to the report. Once recovery is well underway, governments should shift from crisis management to more structural tax reforms, but they must be careful not to act prematurely as this could jeopardise recovery. “Right now, the focus should be on the economic recovery. Once the recovery is firmly in place, rather than simply returning to business as usual, governments should seize the opportunity to build a greener, more inclusive and more resilient economy,” said Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration. “One path that should be urgently prioritised is environmental tax reform and tax policies to tackle inequalities”.

Rising pressure on public finances as well as increased demands for fairer burden-sharing should also provide new impetus to reach an agreement on digital taxation. “Tax co-operation will be even more important to prevent tax disputes from turning into trade wars, which would harm recovery at a time when the global economy can least afford it,” Mr Saint-Amans said.

Tax Policy Reforms 2020 also provides an overview of the reforms introduced before the COVID-19 crisis. It highlights continuation of a number of trends identified in previous years, including personal income tax reductions for low and middle-income households and the stabilisation of standard value-added tax (VAT) rates observed across many countries. Corporate tax rates have continued to decline, but at a faster pace than in 2019.

Areas where clear progress has been made include reforms to ensure the effective collection of VAT on online sales of goods, services and intangibles, and the adoption of measures in line with the OECD/G20 Base Erosion and Profit Shifting Project to protect corporate tax bases against international tax avoidance. On the other hand, progress on environmentally related taxes has been slow, with reforms being concentrated in a small number of countries and limited in scope.

The report also notes that there has been a marked change in property taxation compared to previous years, with an increase in the number of reforms in that area, generally aimed at raising taxes.

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WEF Announces Global Technology Governance Summit and Flagship Report

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The World Economic Forum today published its flagship Global Technology Governance

Report in advance of its upcoming Global Technology Governance Summit. The summit will be held virtually and in Tokyo, Japan, from 6 to 7 April 2021. The central focus will be the transformation experienced as a result of COVID-19 and its technological impact on society, businesses, and governments. The theme of the meeting is Harnessing New Technologies of the Fourth Industrial Revolution.

“Fourth Industrial Revolution technologies can play a significant role in helping societies emerge from the pandemic stronger than ever” shared Murat Sönmez, Managing Director, World Economic Forum. However, if not directed with purpose, the Fourth Industrial Revolution could exacerbate inequality; therefore, proactive steps must be taken to ensure technology adoption does not heighten abuse of power, bias, wealth disparities, exclusion and loss of livelihoods.”

Efforts to recover from COVID-19 have triggered an influx of innovations in work, collaboration, distribution and service delivery – and shifted many customer behaviours. While these technologies can help drive enormous social breakthroughs and economic value, they can also be misused.

New governance models are required to fill gaps, enhance technology’s benefits and avoid harm. The COVID-19 pandemic has accelerated the urgent need to address these gaps.

The World Economic Forum and Deloitte produced a practical handbook to examine some of the Fourth Industrial Revolution’s most critical applications. The report aims to address these technologies’ governance challenges in a post-pandemic world so they can reach their full potential.

“Every industrial revolution has reshaped economies and social structures in ways that have defined local, regional and global history. The technologies driving the Fourth Industrial Revolution are already presenting opportunities and challenges we can only address through a forward-looking and innovative approach to governance,” said William D. Eggers, Executive Director of the Deloitte Center for Government Insights. “The question is, how can we harness and shape this disruption in a way that promotes global economic recovery, expands human opportunity and increases cooperation and security?”

Global Technology Governance Report 2021

The analysis revealed common challenges across the five Fourth Industrial Revolution technologies, focused on:

· Artificial intelligence (AI)

· Blockchain

· Drones and unmanned air systems

· Internet of things (IoT)

· Mobility (including autonomous vehicles)

These challenges include a lack of regulation, misuse of technology, and addressing cross-border differences. For instance, one estimate suggests that bitcoin accounts for more than 90% of ransomware payments. The lack of regulation of facial recognition technologies and incidents of misuse by law enforcement agencies has caused a backlash against this technology throughout the world.

There are common themes in what makes technology governance effective. For example, many governing bodies are unprepared for the legal consequences of facial recognition and other transformative technologies – much less the ethical implications. The report profiles a series of innovative governance and regulatory frameworks to address these and many other challenges.

Governing these new technologies will require new principles, rules and protocols that promote innovation while mitigating social costs. This report aims to help governments, innovators and other stakeholders understand the current challenges.

The study will enable conversations across a broad cross-section of stakeholders to partner on technology governance globally.

Global Technology Governance Summit 2021

Solving this dilemma requires a more agile approach to governing advanced technologies, creating public-private partnerships and managing business models. To that end, the World Economic Forum, as the International Organization for Public-Private Cooperation, is convening the first Global Technology Governance Summit virtually and in Tokyo, Japan, on 6-7 April 2021 in close collaboration with the Forum’s Centre for the Fourth Industrial Revolution Network launched in 2017.

This global network comprises more than 50 governments and international organizations as well as 150 companies. The summit will have 250 on-site participants with 300 more joining virtually.

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COVID-19 could see over 200 million more pushed into extreme poverty

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Children play outside a metal polishing workshop in a slum in Uttar Pradesh, India. © UNICEF/Niklas Halle'n

An additional 207 million people could be pushed into extreme poverty by 2030, due to the severe longterm impact of the coronavirus pandemic, bringing the total number to more than a billion, a new study from the UN Development Programme (UNDP) has found. 

According to the study, released on Thursday, such a “high damage” scenario would mean a protracted recovery from COVID-19, anticipating that 80 per cent of the pandemic-induced economic crisis would continue over a decade. 

Not a foregone conclusion 

The gloomy scenario, is however, “not a foregone conclusion”. 

A tight focus on achieving the Sustainable Development Goals (SDGs), could slow the rise of extreme poverty – lifting 146 million from its grip – and even exceed the development trajectory the world was on before the pandemic, UNDP said

Such an ambitious but feasible “SDG push” scenario would also narrow the gender poverty gap, and reduce the female poverty headcount, even taking into account the current impacts of the COVID-19 pandemic, the agency added. 

A “Baseline COVID” scenario, based on current mortality rates and the most recent growth projections by the International Monetary Fund, would result in 44 million more people living in extreme poverty by 2030 compared to the development trajectory the world was on before the pandemic. 

COVID-19 ‘a tipping point’ 

Achim Steiner, UNDP Administrator, highlighted that the COVID-19 pandemic is a “tipping point” and the future would depend on decisions made today. 

“As this new poverty research highlights, the COVID-19 pandemic is a tipping point, and the choices leaders take now could take the world in very different directions. We have an opportunity to invest in a decade of action that not only helps people recover from COVID-19, but that re-sets the development path of people and planet towards a fairer, resilient and green future.” 

The concerted SDG interventions suggested by the study combine behavioural changes through nudges for both governments and citizens, such as improved effectiveness and efficiency in governance and changes in consumption patterns of food, energy and water.  

The proposed interventions also focus on global collaboration for climate action, additional investments in COVID-19 recovery, and the need for improved broadband access and technology innovation. 

The study was jointly prepared by UNDP and the Pardee Center for International Futures at the University of Denver. It assesses the impact of different COVID-19 recovery scenarios on sustainable development, and evaluates multidimensional effects of the pandemic over the next ten years. 

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Cut fossil fuels production to ward off ‘catastrophic’ warming

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Countries must decrease production of fossil fuels by 6 per cent per year, between 2020 and 2030, if the world is to avert “catastrophic” global temperature rise, a new UN-backed report has found. 

Released, on Wednesday, in the shadows of the coronavirus pandemic, the Production Gap Report also revealed that while the pandemic and resulting lockdowns led to “short-term drops” in coal, oil and gas production, pre-COVID plans and post-COVID stimulus measures point to a continuation of increasing fossil fuel production. 

“As we seek to reboot economies following the COVID-19 pandemic, investing in low-carbon energy and infrastructure will be good for jobs, for economies, for health, and for clean air,” said Inger Andersen, Executive Director of UN Environment Programme (UNEP).  

“Governments must seize the opportunity to direct their economies and energy systems away from fossil fuels, and build back better towards a more just, sustainable, and resilient future.” 

The Production Gap Report, produced jointly by research institutions – Stockholm Environment Institute (SEI), International Institute for Sustainable Development (IISD), Overseas Development Institute, and E3G – and UNEP, measures the “gap” between the aspirations of the Paris Agreement on climate change and countries’ planned production of coal, oil, and gas. 

The report also comes at a potential turning point, according to the author organizations, as the global pandemic prompts unprecedented government action – and as major economies, including China, Japan, and the Republic of Korea, have pledged to reach net-zero emissions. 

‘Recover better together’ 

The 2020 edition found that the “production gap” remains large: countries plan to produce more than double the amount of fossil fuels in 2030 than would be consistent with a 1.5-degree Celsius temperature limit. 

UN Secretary-General António Guterres said that the report showed “without a doubt” that the production and use of fossil needs to decrease quickly if the world is to achieve Paris Agreement goals. 

“This is vital to ensure both a climate-safe future and strong, sustainable economies for all countries – including those most affected by the shift from grey to green,” he said. 

“Governments must work on diversifying their economies and supporting workers, including through COVID-19 recovery plans that do not lock in unsustainable fossil fuel pathways but instead share the benefits of green and sustainable recoveries. We can and must recover better together.” 

Use COVID-19 recovery plans 

The report outlined key areas of action, providing policymakers with options to start winding down fossil fuels as they enact COVID-19 recovery plans. 

“Governments should direct recovery funds towards economic diversification and a transition to clean energy that offers better long-term economic and employment potential,” said Ivetta Gerasimchuk, report co-author and lead for sustainable energy supplies at IISD. 

She also highlighted that the pandemic-driven demand shock and the plunge of oil prices this year once again demonstrated the vulnerability of many fossil-fuel-dependent regions and communities. 

“The only way out of this trap is diversification of these economies beyond fossil fuels,” Ms. Gerasimchuk added. 

A ‘clear’ solution 

The report also urged reduction of existing government support for fossil fuels, introduction of restrictions on production, and stimulus funds for green investments. 

Michael Lazarus, report co-author and the head of SEI’s US Center, underscored “research is abundantly clear, we face severe climate disruption if countries continue to produce fossil fuels at current levels, let alone at their planned increases.” 

“The research is similarly clear on the solution: government policies that decrease both the demand and supply for fossil fuels and support communities currently dependent on them. This report offers steps that governments can take today for a just and equitable transition away from fossil fuels.”  

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