Sound fiscal policies create the necessary conditions for flexibility, which cushions the effects of the economic cycle through the functioning of automatic stabilisers. Sound fiscal policies also ensure proper incentives. The tax and benefit system should avoid major distortions that would affect incentives to work, save, invest and innovate, thereby making fiscal policy more efficient and growth-friendly.
As can be seen in the right panel of Chart 6, the year-onyear rate of change in nominal wages has been negative since April 2020. In particular, it saw a larger decline again at the end of 2020, primarily reflecting a decrease in special cash earnings; how this will affect future consumption is a matter of concern.