Global Fiscal Realities: The Inevitability of Increased Taxes Post-COVID

The global pandemic has left no economy unscathed. As countries seek to support their citizens and economies, the question arises: Will all governments have to increase taxes to cover the additional costs of industry support, healthcare, and social welfare?

To some, particularly in countries like Sweden and Norway, the answer may seem straightforward. During the early stages of the pandemic, Sweden chose to temporarily operate at a fiscal deficit rather than run a budget surplus. Norway, with its substantial oil revenues, has accumulated a significant fund. However, these nations will eventually need to use these resources to address the ongoing needs brought about by the pandemic.

Who Pays for Government Services?

The government, unlike many private entities, does not profit from the sale of goods but rather from the provision of essential services such as healthcare, education, infrastructure, and social welfare. To maintain the solvency of society, it is necessary to generate revenue from citizens according to their ability to pay, through taxes.

The Fiscal Burden on Individuals and Corporations

While the wealthy and corporations may enjoy tax breaks now, they are expected to reap significant long-term savings. However, the broader population may face negative consequences:

Reduced disposable income: As governments increase their share of earnings, individuals may see a decrease in their take-home pay. No infrastructure support: The lack of adequate infrastructure can hinder economic growth and development. No education for kids: The disruption in education access can impact long-term productivity. No healthcare: Essential healthcare services are crucial for maintaining a productive workforce. No insurance: The lack of insurance can make individuals more vulnerable, potentially leading to financial strain.

These sacrifices are not unique to any one country. Whether in the form of infrastructure development, education, healthcare, or insurance, the cost of government support ultimately falls on the citizens through increased taxes.

Economic Recovery and Fiscal Adjustment

The massive injection of trillions of dollars into the global economy has set the stage for an economic recovery. However, this recovery comes with a heavy price. The argument that increasing the federal budget without a corresponding increase in taxes will not result in increased taxes in the long run is naive.

Historical precedents, such as the Jimmy Carter era in the United States, show that significant deficits often lead to economic downturns. Double-digit inflation, unemployment, and interest rates are not uncommon in such periods. As the economy recovers, it is likely that many governments will need to replenish their revenues through increased taxation.

The Broader Picture: We Are All in This Together

While it may seem burdensome, the reality is that we are all interconnected. The global community has faced a significant crisis, and the proper response involves shared sacrifice. The benefits of a stable and functioning society outweigh the short-term costs of increased taxation. However, this is not an excuse to bear the burden in silence. We should be prepared to contribute to the collective effort, even if it means a temporary dip in disposable income or a shift in economic priorities.

As we navigate the road to economic recovery, it is imperative to acknowledge the fiscal realities and work towards sustainable solutions. Increased taxes are likely to play a crucial role in this process, ensuring that the economic recovery is equitable and long-lasting.