Discussion of "Redistributive effects of consolidation on the revenue side" by John HIlls

Marcel Gerard (Catholic University of Louvain) stressed that, regardless of whether fiscal tightening was the best solution for restoring trust and fostering recovery and growth, those who suffered the most as a result of austerity programs were the poorest and not those who could be blamed for the current crisis, like the bankers and other among the richest. Furthermore, he pointed to the opinion of the IMF, which considered that fiscal consolidation measures tended to worsen inequality, and emphasized the current challenge to put the greatest burden on those who had the largest shoulders. Gerard highlighted new options which were related to the current circumstances, namely that the ability-to-pay could be measured by the taxpayers' largest gains prior to the crisis. Or it could be linked to the responsibility for the crisis. Gerard then proposed tax packages aiming at distributional neutrality, while trying also to suggest tax novelties. A first package combined a VAT increase and an income tax increase. A second tax package for distributional neutrality involves a combination of a CO2 tax and the distribution of energy vouchers to poor people. As regards tax novelties, he depicted the idea of taxing those who benefited from rents in the past, especially if their rent-seeking activities were in a way partly responsible for the current crisis, like financial activities. He also suggested introducing a two-sided tax on mobile telephone calls or on e-mails, which might generate large revenue with small distributive effects. He then focused on the issue of tax rates and bases mobility. Gerard concluded that policy makers needed to make sure that tax increases were distributionally neutral, or at least neutral for lower deciles. He advised combining tax increases with compensations and urged leaders to be imaginative