OECD says fiscal measures were ‘key element’ in tackling inflation

Fiscal measures taken by OECD members and key partners have been a “key element” in helping families and businesses fight rising inflation, the OECD said in its annual report published this Wednesday.

In a statement released this Wednesday, the OECD (Organization for Economic Co-operation and Development) said that in 2022, marked by Russia’s invasion of Ukraine, prices of many basic products have risen sharply, forcing governments to take measures to mitigate the effects of inflation in their economies. , which reached its highest level in “more than a decade.”

In this context, “fiscal measures have become a fundamental component of measures to support families and businesses,” the organization emphasizes in its report entitled Fiscal Policy Reforms 2023, along with subsidies, fiscal transfer policies and maximum price limits on some essential goods. .

The most common tax policies have been to reduce VAT and excise rates (an indirect tax) on energy products, index tax bracket thresholds to inflation and introduce tax deductions and credits, says the Paris-based institution, which analyzed the tax policies of 75 countries. .

These measures have increased costs to the budget: the OECD notes that “while temporary tax cuts are beneficial due to their immediacy and visibility, their often untargeted nature has increased costs to the budget and affected incentives to reduce energy consumption”, in a context in which public debt has been inflated due to support plans during the Covid-19 pandemic.

There was an urgent need to support fossil fuel-consuming households, but fiscal measures are also linked to the energy transition, the institute notes, and have become “more important” for fiscal policy over the past decade as calls for an energy transition have become more frequent. increasingly relevant.

“Despite high energy prices, several rich countries have simultaneously raised carbon prices to support the transition to a low-carbon economy,” writes the OECD, which welcomes the European Union’s recent vote in favor of a new border carbon adjustment mechanism.

At the same time, the OECD is highlighting the introduction in a growing number of countries of a tax on extraordinary profits of companies that benefited from price increases associated with the war in Ukraine, especially in the energy sector, such as oil. and electricity producers.