EY (Ernst & Young), MIT Connection Science, Michael Dukakis Institute, World Bank, and New America are partners to establish The Prosperity Collaborative to advance practical solutions in the financial crisis from the COVID-19 pandemic. The COVID-19 pandemic constitutes a serious challenge for most countries, particularly those with weak health and social protection systems, and feeble response capacities overall. Governments will have to reprioritize development, service delivery, and administrative activities in order to appropriately – and urgently – allocate financial resources to serve its citizens basic needs. Many countries face fiscal space constraints given these urgent needs.
Revenues are expected to decline faster than GDP. The COVID-19 pandemic and resulting economic slowdown is lowering government revenues. The impact on revenues will likely exceed the hit on economic growth as the fiscal multiplier during economic downturns has exceeded 1 historically. The resulting decline in the revenue-to-GDP ratio reflects: (1) the tendency of some tax bases to decline faster than GDP in the face of an economic downturn (profits, capital gains, excises, and imports tend to decline faster than GDP during a recession); (2) a decline in commodity prices and related revenues; and (3) possible discretionary changes in tax policy in response to the crisis, such as lowering of tax rates, inducing capital and labor investments through tax credits and incentives, or further increasing tax allowances deductions. In the present circumstances, revenue performance may be further harmed by the likelihood of a reduction in taxpayers’ compliance, and the inability of tax administrations to maintain business continuity.
A public-private partnership is needed to advance practical solutions in this crisis. No single institution has the capabilities, capacity and legitimacy to develop and implement solutions to optimize tax administration effectiveness amidst this unprecedented crisis. A public-private partnership can overcome these hurdles by: (1) leveraging the knowledge of policy, technology and taxation residing with leading edge organizations from the private sector, academia, and think /action tanks to discover and deploy practical solutions and navigate the rapidly evolving landscape; (2) devising a strategy to help tax administrations continue operating remotely; (3) combining the legitimacy of an international institution, the private sector, civil society, and national governments to set the necessary principles and standards; and (4) mobilizing the necessary resources to get the job done.