Head of the IMF argues that “game-changing” tax reforms are needed to counteract demographic shifts

Wed, 03/09/2016 - 12:23

Paying for a global population that is living longer, thanks to innovations in sanitation and medicine, has the potential to send global debt skyrocketing to 400% of GDP by the end of the century if governments do not adapt their fiscal policies to address serious demographic changes.

During her speech at MIT, Christine Lagarde (the head of the IMF) noted that there are several ways governments could address this, but that traditional methods of increasing available revenue such as increasing VAT are too short-term. Politicians need to start thinking beyond the election cycle and take action to reform their fiscal policies. Mme Largarde called on governments to improve their whole system of taxation and public expenditure policies and to broaden the taxation base for VAT, improve taxation of multilateral corporations and strengthen tax compliance. 

While there have been international moves towards these recommendations (such as tackling multinational companies’ Base Erosion and Profit Shifting practices), public investment as a whole needs to be better managed and targeted on, for example, preventative health care and primary education.

Mme Lagarde’s comments are very much in line with Public Finance for WASH’s view that governments must find sustainable and equitable sources of public finance that can then fund improved sanitation infrastructure and access. 

Read more about Christine Lagarde's speech at MIT News or Public Finance International, or watch her full speech below (video starts at 29:00).