By Céline Colin, Tax Economist, and Bert Brys, Senior Tax Economist, Centre for Tax Policy and Administration, OECD
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The COVID-19 pandemic has demonstrated that weaknesses in one country’s health sector can rapidly become a health challenge for other countries. Additionally, as countries around the world, including Côte d’Ivoire and Morocco, face the current economic and health crisis, the sense of urgency to mobilise domestic resources has increased. The crisis has put spending and tax revenues under severe pressure while at the same time requiring increased funding for the health sector. Moreover, the post-COVID-19 period might lead to particular challenges to financing for other ongoing health threats like AIDS, tuberculosis and malaria, as health budgets might be re-prioritised and budget increases might not be allocated to those three particular diseases.
Since 2003, the Global Fund to Fight AIDS, Tuberculosis and Malaria has provided financial support to Côte d’Ivoire (USD 640 million) and Morocco (USD 100 million) to assist the two countries in building capacity to fight these diseases, and mobilise domestic resources to fund their health care systems. At a time when it has become more urgent than ever, what can countries like Côte d’Ivoire and Morocco concretely do to mobilise more tax revenues to finance their health systems?
It is important to first recognise that health challenges do not stop at national borders, but are global in nature and often require regional or global co-ordination, information sharing and action. Second, countries are not unique in the tax policy challenges they are facing, and can learn from countries around the world.
Two new OECD reports released today present recommendations on how Côte d’Ivoire and Morocco can improve the design of their tax systems to strengthen their health financing systems. The analysis shows that in both countries, part of the solution will be to carry out an ambitious tax reform, implemented gradually over time. Implementing these reforms would help each country address their economic and social challenges today, while preparing for future challenges like climate change, which could have devastating effects for the health and well-being of all citizens, especially the most vulnerable.
Ways to improve the design of tax systems to strengthen health financing systems
| Increasing revenues from health taxes and health-related taxes | Increasing general tax revenues for the State budget |
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Greater and better designed health taxes, levied on goods that adversely affect health, can play an important role and create new opportunity as a source of funding. More specifically, while both countries have taxes in place on tobacco, alcohol and sugar-sweetend beverages, there is significant scope to increase their revenue raising potential. In Morocco, tobacco tax revenues are relatively high but the design of the taxes could be improved, and tax rates on alcohol could be increased. In Côte d’Ivoire, tax rates on tobacco could be increased, and the plan to introduce new excise duties (such as on cosmetics) should go ahead, as foreseen by recent regional legislation.
Another important area is the broader group of health-related taxes, which are taxes that have a direct or indirect link with health, including health-taxes as well as certain environmental taxes and health social security contributions. Neither country has used environmental taxes to their full potential despite their double dividend: there is strong evidence that an improvement in the quality of the environment improves people’s health. In fact, several studies have recently found a clear link between local air pollution and the number of COVID-19 deaths. Increasing the role of environmental taxes would not only improve environment and health outcomes in the long run, but would also support raising tax revenues while diversifying the country’s tax mix at the same time.
Both Morocco and Côte d’Ivoire can improve the design of their compulsory health insurance schemes, by scaling them up with increased population coverage and a more comprehensive range of health care services. Morocco introduced its compulsory health insurance scheme 15 years ago while Côte d’Ivoire did so last year. In Morocco, where health funds are facing a budget deficit, a revision of the compulsory health insurance financing framework, with a change in the health contribution together with better control of health expenditure, would be welcome. In Côte d’Ivoire, the health contribution should be made more progressive in the long run, while additional sources of financing, beyond taxes on labour income, could complement the overall financing of the system. However, in order to raise more revenues for the general state budget to finance health systems, countries should use their entire tax mix in ways that are fair, the least harmful for economic growth, and with low administrative and compliance costs. This approach should include a wide range of taxes, including corporate and personal income taxes, consumption taxes such as the value-added tax, and property taxes.
The COVID-19 crisis has created a window of opportunity to strengthen the formal economy so that more workers are brought within the reach of the social safety net. This requires a formalisation strategy that includes, but goes beyond, taxation. It requires a coordinated reform of labour market regulations, social protection measures, taxation and other key areas. A formalisation strategy should go hand in hand with other base-broadening measures that combat tax fraud, tax evasion and illicit financial flows, as well as a rationalisation of overly generous and poorly targeted tax expenditures.
In both countries, earmarked tax revenues for health are limited, which is in line with good tax policy advice. However, there may be a case for soft earmarking of health tax revenues, mainly because the health tax revenues that have been collected in the past remain relatively modest compared to the large existing and emerging health spending needs. Against this backdrop, like many other African countries, Côte d’Ivoire and Morocco will need to continue to mobilise domestic resources to meet the health needs of their populations. Both countries understand the importance of meeting this challenge and the reports released today provide them with a way forward in harnessing tax policy to this end. As the COVID-19 pandemic shows, this issue has never been more pressing than it is today.