Greater Public Spending Needed to Reduce Inequality

Video | 1 April 2014

Governments in the region should tackle widening inequality that is keeping millions poor, by using fiscal policy to close gaps and promote more inclusive growth, says the theme chapter of Asian Development Outlook 2014.

Transcript

Title: Greater Public Spending Needed to Reduce Inequality

Description: Governments in the region should tackle widening inequality that is keeping millions poor, by using fiscal policy to close gaps and promote more inclusive growth, says the theme chapter of Asian Development Outlook 2014.

VO: The Asia Pacific region fast economic growth has boosted living conditions and lifted millions out of poverty. But the same market forces that have enhance growth now exacerbate inequality.

Fiscal policy in the region has generally prioritize growth. In contrast, policy makers in advanced economies have extensively used fiscal policy to improve social equity. The theme chapter of ADB’s Asian Development Outlook 2014 discusses the dilemma facing developing Asia. How to use fiscal policy to promote inclusion while maintaining sustainability.

The amount of fiscal spending is important, so to is the composition of that spending. International experience shows investments in education and health, can support more inclusive growth. Education policy for example should place priority on basic education and expanding technical and vocational training. Public health policy should spread resources fairly among the population.

Asian Development Outlook 2014 outlines that developing Asia needs to expand and strengthen its comparatively limited fiscal resource space. A comparison in figures in 2000 the ratio of tax revenue to GDP average, 36.2% OECD, 23.8% Worldwide, 18.2% Latin America, 12.5% Developing Asia. These figures clearly show that the region must improve its mobilization of fiscal resources across all categories.

SOT: Juzhong Zhuang
Deputy Chief Economist
Asian Development Bank
Asian governments have a number of options to explore. First is to broaden the base for income tax and VAT. The second is to make queries of collective taxes such as sin tax on cigarettes and alcohol. The third is to introduce progressive taxes on property and inheritance.

VO: Governments need to plan for equity. They can do this by integrating equity objectives in long term fiscal planning. Political commitment will safeguard fiscal sustainability and ensure more equitable allocation of scarce fiscal resources.