The current, widely-practiced model of Neoliberalism, and within it over-board recourse to monetary and fiscal austerity policies– both within and outside of the International Monetary Fund (IMF) programmes –by countries, overall, has resulted in accruing economic growth sacrifice, which remains unwarranted both in terms of the non-sustainability that this policy direction brings— given over-emphasis on aggregate demand squeeze policies and lack of policy emphasis on boosting the supply-side, especially in terms of improving the underlying institutional quality determinants, in particular reducing information asymmetries in an overall effort to minimize transaction costs – for achieving in any significant way sustained macroeconomic stabilisation and economic growth.
Secondly, the lack of fiscal space that this over-board practice of austerity policy creates, both through unwarrantedly high level of interest payments due to over-board practice of monetary austerity to control inflation – when inflation has a strong determination from supply-side, especially in a world of existential threats, and overall polycrisis situation, and including rising geo-political tensions – and also due to practice of fiscal austerity, under which primary surplus – while what should be done is reaching more sustainable level of fiscal deficit by minimizing non-development expenditures, and through bringing allocative efficiency to expenditures by switching them towards greater level of environmental and welfare spending – is wrongly targeted to once again squeeze aggregate demand to control inflation, while lack of development spending, including spending to transition away from fossil fuel usage, is what this policy is wrongly doing.
Sadly, this entire debate was missing from the discussions at COP29 meetings in Baku, Azerbaijan, and, which also did not reportedly take place at the G20 Leaders’ Summit in Rio de Janeiro, Brazil. The fiscal space lost, both in the public, and private domains in countries where lopsided austerity policies were followed – and which were a lot – needs to be restored by bringing much-needed balance between policy focus on aggregate- demand, and supply-side, in an overall effort to bring macroeconomic stabilization. This significant policy correction will bring in important support in an overall effort to raise the level of climate finance.
Another important element reportedly missing from the discussions at COP29 meetings was the lack of mention of climate change-related release of special drawing rights (SDRs) by IMF; a much-needed step that is being pursued by countries, especially by the Prime Minister of island nation, Barbados – which are among countries that are among most challenged by the fast-unfolding climate change crisis – for some time now, but to not much avail.
Moreover, there was reportedly no discussion upon bringing much-needed policy focus to improve the global debt restructuring framework, which has kept at least dozens of developing countries – including those like Pakistan, which are otherwise among the top-ten climate challenged countries –under serious threat of default, in addition to those countries paying a significant amount from their already weak level of foreign exchange reserves, putting in turn undue pressure on their domestic currencies—a situation, which in turn contributes towards raising imported- and cost-push inflation in those countries.
Higher aggregate price level domestically, and taller import prices negatively impact – among other expenditures – the efforts for moving towards a net-zero carbon economy. More than that, burden on foreign exchange reserves that the above-mentioned wrong policies, among other produce, also mean that these developing countries find it difficult to import better grade fuel, along with electric vehicles, in an overall effort to meaningfully, reduce global warming, and also significantly control the otherwise dangerous smog situation in many parts of the country, especially Lahore, and Multan.
Having said that, even within the limited – although also important – policy focus with regard to raising the level of climate finance, there has been a lack of break-through, not to mention that concern also remains sadly that what was mentioned in the final communique of COP28 meetings, whereby it was mentioned ‘transition away from fossil fuels’ may not make it to the final communique of COP29.
It is a travesty that countries benefitting from their reserves of fossil fuel cannot see beyond their short-sighted profit gains, while the frequency and intensity of climate change crisis, including the intensity of smog that plunders health and economic spheres of country after country. For instance, the apocalyptic floods in Spain this year, and before that in 2022 in Pakistan, and smog levels crossing again and again over the last month levels of more than 2000 in terms of air quality index produced by ‘IQAir’ when as per World Health Organization’s (WHO’s) anything more than 300 falls in the most serious or hazardous zone!
A number of tax-related proposals, although of substantive nature, are lacking the consensus that they should be getting quickly from countries, given the fast-unfolding nature of climate change crisis. The seriousness of the situation with regard to global warming, for instance, could be gauged from the fact that while it is clear on the basis of most scientific consensus that going beyond the average annual global temperature threshold of 1.5C needs to be avoided to protect the world from irreversible consequences of climate change, and while it was being assumed that the window of opportunity in this regard, at least, held a couple of years, and perhaps a decade, yet a recent important research should raise serious alarm bells, including hastening consensus on all matters, including reaching meaningful level of climate finance, in the overall fight against climate change, and associated with it the issue of ‘Pandemicene’ phenomenon, and smog.
A November 18, Guardian published article ‘World’s 1.5C climate target “deader than a doornail”, experts say’ pointed out in this regard: ‘The internationally agreed goal to keep the world’s temperature rise below 1.5C is now “deader than a doornail”, with 2024 almost certain to be the first individual year above this threshold, climate scientists have gloomily concluded – even as world leaders gather for climate talks on how to remain within this boundary.
Three of the five leading research groups monitoring global temperatures consider 2024 on track to be at least 1.5C (2.7F) hotter than pre-industrial times, underlining it as the warmest year on record, beating a mark set just last year. The past 10 consecutive years have already been the hottest 10 years ever recorded.’
Hence, there is no room for foot-dragging with regard to launching a full throttle push towards actively dealing with the climate change crisis, and ensuring that if at all there is any room in terms of remaining below the 1.5C threshold, it should be grasped with both hands. In any case, the effort to keep global annual average temperature continues even if this threshold is missed, given the goal of keeping damage to the environment to the minimum possible remains nonetheless.
In addition to bringing to table for discussion the above points at COP29, the participants should also consider two important tax proposals in an overall effort to increase the level of climate finance, which should anyways serve as low-hanging fruit as far as tax policy measures that are needed to be taken to raise climate finance are concerned. Moreover, these measures will also help check otherwise widening global income-, and wealth inequality.
One tax proposal, proposed earlier this year by noted economist Gabriel Zucman, is with regard to taxing the billionaires. A June 25 Financial Times (FT) published article ‘Minimum tax on billionaires would raise up to USD250 billion a year, says report’ indicated in this regard: ’A global minimum tax on billionaires raising up to USD250 billion a year is “technically feasible” and could be successfully enforced even if it was not adopted by every country, according to a report commissioned by the G20.
Gabriel Zucman, an economist and author of the paper, said a coordinated minimum tax on the total wealth of the world’s 3,000 billionaires was needed to increase their contributions. The report recommended individuals with more than $1 billion in total wealth, including assets such as real estate, equity stakes and larger corporate shareholdings, pay a minimum amount of tax equal to 2 percent of their wealth.’
Another tax proposal came from economics Nobel laureate, Esther Duflo, which included support of the proposal by Gabriel Zucman [indicated above] and should be considered at the earliest possible. An April 22, FT published article ‘Esther Duflo: Rich world owes USD500 billion in ‘moral debt’ to poor countries’, based on an interview with Esther, where she indicated her proposal in her own words as ’The minimum tax on corporations has been fixed at 15 percent [under an international agreement].
But originally, the number that was proposed was 25. So I’m thinking, well, there is maybe a bit of margin. And if you went from 15 to 18 per cent, you could raise about USD200 billion a year. And then, in February, the G20 discussed the proposal of Gabriel Zucman and the EU Tax Observatory of a tax on the super-rich – a tax of 2 percent yearly on the wealth of the 3,000 richest billionaires. That would raise $300bn.
So if you combine these two, you get to your USD500 billion. …What is interesting with this USD500 billion number is that OK, it looks big, but it’s not really that big. There are two instruments [in my proposal], and they are not going to weigh on the middle class in rich countries. They’re not going to be a big burden on the ultra-rich, because 2 percent of their wealth is only 30 percent of their income from their wealth, which is currently untaxed.
I think we need to rely on taxation because that is the way in which traditionally we ensure that everyone in the economy, private companies and individuals, contributes to the public good. And the two instruments I propose – they are not necessarily the only ones possible, but they will be sufficient to raise the money.’
(The writer holds PhD in Economics degree from the University of Barcelona, and previously worked at the International Monetary Fund. His contact on ‘X’ (formerly ‘Twitter’) is @omerjaved7)
Copyright Business Recorder, 2024