Countries around the world should slash taxes on employment and reform welfare to boost their economies, according to the International Monetary Fund (IMF).
Ahead of its half-yearly and closely-watched world economic outlook, the IMF raised concerns about “the current environment of persistent weak economic activity in many advanced economies”, outlining its suggestions for increasing economic output and employment.
Key among them were labour market reforms, which would boost both output and employment.
“Now is a good time to make a big push for … reforms in many advanced economies," said Romain Duval and Davide Furceri of the IMF’s research department. "There is strong need and scope for further reforms, the political environment is conducive... and reforms pay off over the medium term.”
Suggested measures centred on improving the incentives for people to work, specifically cutting employment taxes like income tax and national insurance, which the IMF said had an almost immediate positive impact on a country’s economy.
That was particularly the case in what it called “weak macroeconomic conditions”: if the difference between how much employees earn before tax and after tax was just one percentage point lower, GDP would be almost one per cent higher within a year.
The IMF noted that “narrowing unemployment benefits and easing job protections” would help growth over the medium-term, but warned that these “should be accompanied by other policies to offset their short-term cost”.
Earlier this week, Christine Lagarde, managing director of the IMF said she was “on alert” over sluggish growth across the advanced world and “vulnerabilities” in emerging markets.