BUDGETARY IMPACT
Claims and Warranties
Not all measures taken in the budget field have the same effect on public finances. Some cause an increase in spending or a decrease in tax revenues, which affects the structural budget balance.
In case of postponement of tax or social debts, the reduction is temporary and may not affect the current year’s budget, depending on the postponement period. Or it may lead to a reduction 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 should therefore be distinguished from other measures for calculating the budgetary impact that reflects the evolution of the primary structural balance.
In terms of immediate budgetary effects and in the absence of a tax lien and bankruptcy to trigger guarantees, the various support schemes represent 4.9 points of GDP for the United Kingdom and 11 points for the United Kingdom.
The acceleration reached 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 backlog of measures adopted between European countries. There are also countries that are more fragile in terms of their macroeconomic situation or public debt. It is seen that they apply less expansionary policies when they are exposed to recessive crises in the health crisis, especially in Italy.
Also, taking into account the cash handover measures, the budget plan reaches 12.6 points in Germany, of which 7.3 points relate to handover measures only. The Italian plan, then, is equivalent to more than 13 points versus 9.8 points in France and just 1.8 points in Spain. This seems to be the biggest plan in terms of scope with a turnover level.
These measures are important for the temporary relief of businesses. In addition, it does not have a permanent effect on public finances, except for the cancellation of tax and social security claims. Essentially, they make it possible to spread wages without reducing the overall tax burden.
Taking the guarantees into account, the total instant commitments plus deferrals and guarantees amount to 39.7% of GDP in Germany and 46.4% of GDP in Italy.
On the French and UK side, these total commitments are 26% and 18%, respectively. It is lower in Spain and the United States: 14.6% and 15% of GDP.
In addition to the main developed economies, especially China, which was the first country to be affected by the pandemic, countries in Asia also took financial support measures. The measures taken by the Chinese government cost about 2.6 trillion yuan.
According to the IMF, the measures currently implemented represent 1.2% of GDP. On the expenditure side, the measures cover expenditures related to the prevention and control of the coronavirus epidemic, the production of medical supplies, faster repayment of unemployment insurance costs to workers, immigration, tax reduction and abolition.
Then, the IMF indicated that budget support for growth could be stronger due to new measures announced, including raising the ceiling for local government bond issuances (private local government bonds) to 1.3%.
The IMF estimates that the total amount of announced measures is now 4.2% of GDP, reflecting a gradual increase in budgetary support for resumption of operations.
Overall, however, China’s budget support remains weaker than it was during the 2007-2009 financial crisis.
Alongside this direct budgetary support, it should be added that the government has taken a number of measures to limit the weight of the financial constraints on companies and households in the current crisis. (Especially by allowing banks to increase their loans and allowing loans to be extended.)
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In other Asian countries, South Korea, Taiwan and Singapore adopted plans for $56 billion (i.e. 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 released $22 billion to support low-income households.
At the European level, budgetary support derives mainly from emergency measures taken by States.
However, the crisis is made through the creation of a credit line without stringent conditions under the European Stability Mechanism. It is considered to find out the tools that could make it possible to mobilize the additional 480 billion euros.
Credits for European short-term financing was given to companies, primarily small and medium-sized companies, as working loans. However, these measures are not intended to create a European debt and will only inflate the debts of Member States that are likely to save interest in this respect.
Recent discussions after the Franco-German initiative taken over by the Commission for a 750-billion-euro plan will change the rules of work within the Union more radically.
Because the initiative aims not to create a European debt. But it could be associated with union-specific resources, such as the introduction of a carbon tax at the borders or a tax on digital giants at the European level.
Yaşam Ayavefe
