The central problem in Latin America and the Caribbean is not poverty, but the extreme wealth concentrated in a few hands that States are unable to tax and redistribute
By Adrián Falco*
This text was originally published in Portuguese by Aupa
The Argentine political leader Eva Perón said, in the 1940s, a phrase that has remained forever in collective memory: “Where there is a need, there is a right”. This sentence sums up in a few words all the feelings about the relevant role and presence of the State when it comes to generating, expanding or restoring rights to reduce inequality. When people need more and better education, healthcare and jobs, a life far from the levels of marginality and poverty, it is the State, with its resources, that must help institutionalise and universalise the right to health, education and work – essentially the right to a decent life.
During the last year and a half, Latin America and the Caribbean have witnessed a humanitarian catastrophe of unimaginable dimensions. The pandemic has aggravated the region’s social deficits, leaving us on the edge of humanitarian collapse. The numbers speak for themselves. According to data from the Inter-American Development Bank, collected in the report by Latindadd, Red de Justicia de América Latina y el Caribe (RJFALC) and Fundación SES on wealth tax, the richest 1% in the region gets 21% of the income of the whole economy, twice the average in the industrialised world. And behind these scandalous numbers are flesh and blood victims of an economic system that often excludes them.
According to data from the UN Economic Commission for Latin America and the Caribbean (ECLAC) for 2020, 8 out of 10 Latin Americans are in conditions of social vulnerability. This is due to the deepening of structural inequalities together with the strong growth of informal employment. We have to add here the closing of 2.7 million companies and the GDP drop of 7.7%. We are facing a setback of 12 years in terms of poverty and 20 years in terms of extreme poverty. This is the estimated time for the region to recover from the crisis.
High levels of poverty, unequal access to education, precarious housing conditions, less access to healthcare and greater participation in informal employment affect women, children and youth the most. The preventive closure of schools to contain Covid-19 infections is contrasted by the lack of infrastructure to attend online classes. Social isolation has increased the workload of women, who carry the burden of unpaid care work.
In the current scenario, the State needs financial resources to tackle the crisis. And I am sure that most readers, if not all, have heard that the State does not have these resources. This is where tax justice plays a key role in the fight against inequality.
Besides being able to generate sustainable public economic resources needed to guarantee human rights, tax systems can be a central tool for reducing inequalities through their redistributive potential. However, in order to effectively combat inequality, they need to be progressive – those who have more need to contribute proportionately more to tax collection.
In Latin America and the Caribbean, consumption taxes are responsible for a large share of tax collection, but very little comes from wealth taxes. We currently lose 26 billion dollars every year for not taxing the large fortunes. Parliaments, with the support of the social movement, should promote emergency taxes on wealth and extraordinary profits, as well as taxes for the use of offshore jurisdictions. This includes taxes on companies in the digital economy, such as Amazon, Netflix, Google, among so many others whose fortunes astronomically increased during the crisis.
It is also essential to curb the growing tax abuse, which allows the outflow of resources from our countries and prevents us from developing inclusive public policies to end structural inequality and fight extreme poverty, which affects 78 million Latin Americans. According to ECLAC, each year the region loses the equivalent of 6% of its GDP as a result of tax fraud. Furthermore, it is necessary to improve the regional integration of our tax systems: currently there is no cooperation in tax matters among the countries in the region. This is like “flying blind” because there is no transparency about what happens in terms of corporate taxation in neighboring countries. We need to strengthen the fight against harmful tax practices and increase tax control over large companies by opening their accounting reports, locating subsidiaries and final beneficiaries.
Our tax systems are tailor-made for large corporations. This results in large losses due to tax benefits, which amount to almost 5% of the regional GDP, exceeding the pre-pandemic regional investment in education. It is an amount that countries do not collect and that becomes part of the assets of these corporations. According to the State of Tax Justice 2020, published by the Tax Justice Network, Public Services International and Global Alliance for Tax Justice, corporate tax abuse represents a loss of at least 500 billion dollars annually to the region. We also lose 320 billion dollars each year through tax evasion, according to ECLAC.
The central problem in Latin America and the Caribbean is not poverty, but the extreme wealth concentrated in a few hands that States are unable to tax and redistribute. In many cases, this is due to the lack of tools to do this – not just technical, but essentially political. However, in many others, this results from the total impunity of local elites and the consent of governments, who become accomplices in the concentration of economic power.