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After a decade of rapid growth, Russia has fallen into recession. The near term challenge is to limit the extent of the downturn, while beyond the crisis, a sounder growth model should be put in place.
The immediate challenge is to gauge the optimal amount and form of stimulus and support for banks, while safeguarding fiscal sustainability. Looking further ahead, tax reform can help raise potential growth rates.
The complexities and fragmentation of Brazil’s tax system make it particularly onerous to enterprises, making it a priority for reform. The state-level VAT has often been used as an industrial policy instrument, resulting in predatory tax competition among the states. Remaining federal levies on enterprise turnover are detrimental to the competitiveness of Brazilian exports. The burden of payroll taxes and social security
Securing fiscal sustainability requires a reform of the fiscal federalism system. The current transfer system does not align spending and taxing responsibilities and the organisation of the federation is not promoting public spending efficiency.
Public finances are shifting further away from fiscal sustainability, emphasising the need for the reform of the fiscal policy making and strategies to deal with the costs of ageing.
The tax system is relying too much on relatively growth distorting taxes. Despite reforms, labour taxation continues to contribute to substantial labour market traps while corporate tax rates are relatively high. Moreover, most tax bases are narrowed by numerous exemptions and reductions.
Austria entered the most severe recession in decades. This triggered prompt policy measures to stabilise the real economy and financial markets, which will deteriorate significantly the fiscal position.
As in most other OECD countries, the fiscal situation in the UK has deteriorated sharply. While to date the discretionary fiscal stimulus has been relatively modest, after around the turn of the century the underlying fiscal position weakened more than anticipated. While there was some subsequent improvement, particularly in tax receipts, the severe impact of the downturn on the public finances and the borrowing related to the rescue
Italy is suffering a serious economic recession, which started earlier than elsewhere but has now accelerated following the downturn elsewhere and collapse in world trade.
The costs of the recession and ageing are a challenge to fiscal sustainability. The estimated fiscal sustainability gap has increased from 3 to 8% of GDP due to a sizeable permanent stimulus and lower potential output. A consolidation plan should be articulated now...