Governments around the world have spent vast sums trying to stem the health, economic and social impacts of Covid-19 over the last year, but the size, scope and quality of fiscal responses to the pandemic varies hugely across countries, leading to uneven and unequal outcomes.
From a social justice perspective this is important, as the response to date is likely to set the trajectory for future economic policy in the longer term.
A new report by Christian Aid’s partner the Financial Transparency Coalition titled Towards a People's Recovery: Tracking Fiscal and Social Protection Responses to COVID-19 in the Global South, highlights that, during 2020, governments in the nine countries assessed across Africa, Asia and Latin America tended to prioritise financial support to big business over supporting people directly through social protection responses.
The research finds that most countries could have done much more to reduce the risk of people falling to poverty by giving greater priority to funding more people-centred and gender appropriate responses.
Assessing global inequalities
Clearly, there are huge global inequalities in governments’ capacity to respond.
Most lower income countries have much less scope to borrow to fund health, other essential services or social protection programmes because they already faced unaffordable debt servicing costs prior to the Covid-19 crisis. Meanwhile, many high income countries have borrowed sums unprecedented in peacetime at record low costs (despite running a huge deficit, the UK Government is predicted to reduce the amount it pays to service its debt in coming years).
However, even in countries which have a much higher capacity to support people affected by Covid-19, like the UK and Ireland, spending has not always been targeted based on need. In the UK the relatively small amount dedicated to providing a temporary £20 uplift to Universal Credit has been the subject of much discussion, despite the challenges faced by people on low incomes and the many calls for it to continue.
Old habits die hard
This is despite a clearly changing economic orthodoxy: many of the recommendations from global civil society made in the aftermath of the financial crisis a decade ago, from ending the race to the bottom on corporate tax to better income protection measures, now receive official IMF endorsement.
However, our new report shows that some old habits die hard, with significantly more spending on support to large businesses, in the form of tax cuts and tax breaks as well as concessional loans and subsidies, than to people in need. Whilst much of this will have kept businesses going, a lot will also have been ‘deadweight’ – essentially unnecessary support to businesses that continued to operate and could have paid workers and suppliers without government help. This money should have gone directly to people living in poverty, and to smaller businesses which tend to face tougher cashflow conditions, and which in many countries often collectively employ larger numbers of people.
Overall, 63 percent of announced Covid-19 funds went to big corporates in eight of the countries surveyed (excluding India). This apparent unevenness is compounded by the relatively low levels of stimulus across the nine countries, averaging 3.7 percent of GDP, much lower than in most high-income countries.
Within this relatively small amount, we identified that less than 1 percent of GDP (or less than a quarter of stimulus packages) is allocated to new funds for social protection to address the risks of increased poverty.
Improving social protection
Perhaps particularly when the amounts involved are relatively small – and the borrowing costs high – it is even more important that governments target spending where it will have most impact in cushioning the economic blow of Covid-19. In that spirit, it is good to recognise countries can design policies which lead to proportionally more social protection spending, such as in Guatemala, where a majority of Covid-19 funding has been spent on such programmes.
Together with our partners who researched and analysed the data, we have set our recommendations in the report to promote better Covid-19 spending and more focus on social justice in economic policy-making moving forward. Governments should develop more comprehensive social protection systems so that when individual, household or national shocks happen people do not fall into poverty and their rights to social security are protected.
Governments have a responsibility to make available the maximum possible resources for fulfilment of this right. Although expensive for many lower income countries, improving social protection is not only the right thing to do, but can also provide wider economic impacts, helping to stimulate economic recovery ‘from the ground up’. To finance this, governments should look to increase revenues from progressive taxes, particularly through an effective and reasonable corporate tax rate.
International cooperation on this and related financial transparency measures will help all governments ensure they receive the taxes owed.