Addressing inequalities and challenges to social inclusion through fiscal, wage and social protection policies

February 13, 2019

Excellencies, Ladies and Gentlemen,

Yesterday we had a very insightful G 77 high-level interactive dialogue on this very central topic!

Today’s CSD dialogue will certainly provide added perspectives to our yesterday's discussion.

In fact, this year must be the “inequalities year”!

The August 2019 Biarritz G7 Summit will focus on inequalities.

UNDP’s next series of Human Development Reports, starting this year, will zoom on how the world can accelerate the reduction of inequalities!

This over focus on inequalities is not surprising! simply because reducing inequalities is at the heart and the intersection of all our global agendas; be it sustainable development, sustaining peace or prevention.

Yet we are collectively walking a snail’s pace!

And yet we have powerful weapons in our policy arsenal to address inequalities. Fiscal policy, our topic of today, is one of them.

We are all well too familiar with what is known as the Nordic Welfare Model. While many economies struggle with sizeable deficits and high unemployment, the Nordic countries have, by and large, enjoyed favorable economic growth with, at the same time, social gaps that continue to be narrow.  The Nordic model provides an example of how fiscal policy can be more actively used to achieve equity, while at the same time enhancing efficiency. The experience of this group of countries shows that it is possible to achieve a strong economy while relying upon a large public sector to achieve a more equitable society through high taxes that fund extensive social insurance and welfare programs.  And these countries have the lowest income inequality.

Target 10.4 of SDG Goal 10 is then achievable! It just needs some acceleration.

It will require three sets of policies.

i.    Expanding the fiscal space, which is quite narrow in many developing countries (the tax to GDP ratio stands at 13-17% on average in developing countries; compared to an average of 45% in Nordic Countries). As domestic resources become more significant in the face of changing fiscal landscape (with ODA declining), it is increasingly important to strengthen the domestic resource base and channel that for national development. For example, the UN estimates that LICs will have to increase their annual public spending by up to 30 percent of GDP to achieve the SDGs.

UNDP has been active in supporting countries to strengthen their tax base, for example through our joint initiative with OECD, called Tax Inspectors without Borders. At TIWB we have been supporting some 30 countries in boosting domestic revenue mobilization by improving tax auditing and tightening compliance efforts across Africa, Asia, Europe, Latin America and the Caribbean. TIWB is on track to meet its goal of delivering 100 deployments of tax auditor experts to developing countries by 2020. And this is a high return investment. On average, for 1$ invested in improving a country’s tax administration’s capacity there is a return of US $ 100 in tax collection.

ii.    Re-distribution policies (including redistributive taxes, anti-poverty programs, minimum wage policies) are key instruments governments have used to tackle poverty and inequality. However, the degree to which these policies are progressive vastly differ across countries. In general, there has been a decline in the progressivity of taxes, and this is cause for concern. One example is a sharp decline in corporate income taxes. Attention will need to be placed on how such a policy (meant to attract more capital) is also having adverse implications on inequality.

iii.    But it is equally important to think of broader macroeconomic policies that can tackle inequality at its core and prevent the kind of market failures it leads to. For example, countries are more unequal when there is ‘jobless growth’ i.e. economic growth is driven by a few sectors, such as oil or capital-intensive sectors. UNDP has been advocating for countries to adopt integrated policies that can enable countries to progress, ensuring no one-is left behind, including through MAPS (which is Mainstreaming, Acceleration and Policy Support) Engagements for the SDGs.  These include creating opportunities for people – especially women- in lower income thresholds, for example, through promoting labor intensive sectors; developing higher skilled jobs (for example moving from producing textiles and garments to electronics and automobiles); leveraging trade policies (that can promote certain categories of employment, while also reducing price of consumer goods for low-income households); ensuring equal opportunity to quality education; providing better access to finance and banking for the poor; and access to health care and social services, among others.

Let me conclude by saying that to achieve these accelerations, it will be critical that policy debates in countries are less inequality-blind by using the 2030 Agenda as a guiding framework. It will be critical that policy dialogues, including article IV consultations with the IMF and Budget discussions at national parliaments factor in such considerations.

Thank you !