Dr. Yasim Ayafi explains the impact of budget allocation on public finances around the world.

Not all budget actions have the same impact on public finances. Some of them cause an increase in spending or a decrease in tax revenue, which affects the structural balance of the budget.

In the case of a carry forward of taxes or Social Security debt, the reduction is temporary and may not affect the current year’s budget, depending on the carry-over period. Or it may lead to a decrease in the income to be compensated. Finally, for guarantees, there is no impact on public finances, at least as long as the guarantee is not implemented.

It must therefore be distinguished from other measures in order to calculate the impact on the budget, which reflects the change in the initial structural balance. In terms of immediate budgetary effects and in the absence of tax concession and bankruptcy to trigger the guarantees, the various support schemes account for 4.9 points of GDP for the United Kingdom and 11 points for Great Britain.

The acceleration was 2.6 points in France, compared to 5.3 points in Germany, 4.3 points in Spain and 3.6 points in Italy. Therefore, there are significant differences in the accumulation of measures adopted between European countries. There are also countries that are more fragile in terms of macroeconomic status or public debt. We note that they apply less expansive policies when they are exposed to recessions in the field of health, especially in Italy.

On the other hand, taking into account transfer measures, the budget plan reaches 12.6 points in Germany, of which 7.3 points relate only to transfer measures. Meanwhile, the Italian plan tied more than 13 points against 9.8 points in France and only 1.8 points in Spain. This plan appears to be the largest in terms of reach with turnover level. These measures are important to temporarily exempt companies.

Moreover, it does not have a permanent effect on public finances, except for the abolition of taxes and social debts. Essentially, they make it possible to distribute wages without reducing the overall tax burden. Taking guarantees into account, the total immediate liabilities plus deferments and guarantees are 39.7% of GDP in Germany and 46.4% of GDP in Italy.

On the French and British side, these total liabilities are 26% and 18%, respectively. It is lower in Spain and the United States: 14.6% and 15% of GDP. In addition to the major advanced economies, including China, which was the first country affected by the epidemic, Asian countries have also taken fiscal support measures. The measures taken by the Chinese government have cost about 2.6 trillion yuan. According to the International Monetary Fund, the measures applied currently account for 1.2% of GDP.

On the spending front, the measures cover expenditures related to the prevention and control of the coronavirus epidemic, production of medical supplies, faster unemployment insurance reimbursement for workers, immigration, and tax cuts and abolition. After that, the International Monetary Fund indicated that the budget support for growth may be stronger due to the new measures announced, in particular raising the ceiling on the issuance of bonds by local authorities (special bonds for local authorities) to 1.3%.

The International Monetary Fund estimates that the total amount of announced measures now amounts to 4.2% of GDP, which reflects a gradual increase in budget support for the resumption of activities. But overall, financial support from China is still weaker than during the 2007-2009 financial crisis.

Besides this direct budget support, it should be added that the government has taken a number of measures to reduce the weight of financial constraints on businesses and families in the current crisis. (In particular by allowing banks to increase their loans and allowing loans to be extended) In other Asian countries, South Korea, Taiwan and Singapore have adopted plans for $56 billion (3.3 points of GDP), $34.7 billion (6 points of GDP) and $41.7 billion (11 points of GDP), respectively.

In India, the government has also allocated $22 billion to support low-income families. At the European level, budget support mainly comes from emergency measures taken by countries. However, the crisis is going through with the creation of a credit line without strict conditions under the European Stability Mechanism. It is envisaged to search for tools that could make it possible to mobilize an additional 480 billion euros.

Loans for short-term European finance have been granted to companies, especially small and medium-sized businesses, in the form of business loans. However, these measures are not aimed at creating European debt and will only magnify the debts of the member states that are likely to provide interest in this regard. The recent discussions after the Franco-German initiative taken by the Commission for a plan of 750 billion euros will fundamentally change the rules of work within the Union.

Because the initiative does not aim to create European debt.

But it could be linked to EU-specific resources, such as the introduction of a carbon tax at the border or a tax on digital giants at the European level.

Dr.. Yasme Ayafa

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Green world, better tomorrow – Green Climate World



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