Global economies have been hard hit by the coronavirus pandemic, and governments now need to figure out how to shore up their balance sheets.
A U.S. public finance report from credit ratings firm S&P on Friday noted that the record economic expansion ended abruptly in March, replaced by sharp declines in gross domestic product, surging unemployment and reduced consumer demand.
“This has created major revenue and spending challenges across our rated universe,” Robin Prunty, managing direct at S&P Global Ratings, said. Companies with strong reserves had the flexibility to weather the initial budget shortfalls, but without any additional stimulus, reserve reductions will limit flexibility and spending cuts will become trickier when they impact public safety and social service programs, Prunty added.
And with coronavirus infection rates surging again, additional reductions in consumer demand for discretionary items might be forthcoming.
Last week’s jobs data, which struggled to adjust for Thanksgiving holiday numbers, was believed to portend an ominous spike in the results reported Thursday. That turned out to be true—new jobless claims for the week ended Nov. 28 totaled 712,000, less than the 780,000 economists expected.
Thursday’s weekly report from the Department of Labor showed that new jobless claims climbed to 853,000. Although far lower than the pandemic high of nearly 6.9 million in March, the new total of Americans filing for first-time unemployment benefits is four times higher than pre-pandemic numbers. Not only is that bad for public health and safety concerns, but it’s also likely to depress consumer demand for nonessentials.
And it’s not just the U.S. that’s facing economic stress; the shock is reverberating worldwide. A month ago, restrictions rolled out across Europe in nations including France, Spain and Belgium, mandating night-time curfews shutting bars and restaurants. New York City on Monday will ban indoor dining as Covid-19 cases and hospitalizations maintain an upward trajectory.
So how are some governments looking to shore up their budgets?
In October, the British government said it plans to make changes to value-added taxes and duty-free shopping on Jan. 1. U.K. retailers fear that tourists will head elsewhere in Europe to do their shopping. U.K. Shadow Chancellor last month warned about the existing jobs crisis and the issues facing high-street retailers.
French tax authorities have already begun pushing to implement a digital services tax, a move that would impact American technology firms including Apple, Twitter and Amazon.
France’s Minister of Finance Bruno Le Maire in October said payments for 2020 will be due this month, and back in May told Reuters that because of the pandemic, the “tax had never been more legitimate or more necessary.”
The move to impose a digital services tax has been growing since last year, but in the case of France the collection had been on hold it attempted to negotiate with the U.S. a multilateral taxation agreement through the Organisation for Economic Co-operation and Development. However, the U.S. suspended talks in June.
And in the U.S., N.Y.S. Assembly Member Robert Carroll, a Democrat representing the 44th District that includes portions of Brooklyn in N.Y.C., has drafted a bill (Bill A06078B) that proposes a $3 surcharge for online deliveries, excluding food and medicine. The premise for the tax is to raise fund that could be used to fund the operating costs of N.Y.C. subways and buses, which has seen a shortfall in revenue because of the drop in ridership during the pandemic. In a tweet, Assemblyman Carroll said he’s also the co-sponsor of the “billionaires, millionaires, Pied-à-Terre and stock transfer tax.”