“A clamor runs through the continent, that of tax justice,” says ECLAC expert

Ricardo Martner is an economist, former head of the tax department of ECLAC (Economic Commission for Latin America and the Caribbean), member of the Independent Commission for the Reform of International Corporate Taxation (ICRICT).

RFI: Why is a fiscal reform for Latin America essential, urgent, today?

Ricardo Martiner: We all know that inequality in Latin America is a structural and chronic problem and that there is a growing awareness that this can be solved little by little, sure, but with measures, with reforms, with new reforms. Particularly with just reforms that allow people to understand and perceive that those who have more collaborate with more resources to satisfy people’s rights. So, I would say that there is a cry that runs through the continent, which is that of tax justice. Many countries and many governments are embarking on both administrative and political processes to reform their tax systems.

RFI: Are the effects left by the Covid-19 pandemic elements that have aroused greater attention due to the need to carry out this type of tax reform?

Ricardo Martiner: Definitely. In other words, what is the public service, the health system, education, the importance they have in the general public after this very serious crisis, is valued. On the one hand and on the other, too, there is a conscience. In fact, the super rich, as we call them, have gotten even richer in the time of the pandemic. So it is a situation that calls for scandal, and that implies taking measures because it is not the capitalist dynamic, let’s call it that, that is going to allow this to be corrected.

RFI: As a former director of Fiscal Affairs at the Economic Commission for Latin America and the Caribbean, if there were two pieces of information that needed to be used to demonstrate to the public the importance of making that reform, which would you use?

Ricardo Martiner: First, the distribution of income. By the way, ECLAC has estimated the distribution of income for many years and we are the most unequal continent in the world. That is irrefutable. And the second thing is that poverty has also increased sharply in our region and measures must be taken to reduce it. For that, more resources must be generated, resources that must be genuine, permanent. Not only because there is a boom in oil, copper or some other raw material, as is usual in Latin America, but it has to come from a better distribution of the wealth of the countries.

RFI: Post-Covid, the super-rich in Latin America have been known to increase their profits. His fortune increased by more than 20%, at the same time the Gross Domestic Product of the region has grown more or less 3% or 4%. But, above all, the Economic Commission for Latin America says that overall Latin America has gone back a quarter of a century.

Ricardo Martiner: That’s right, in terms of poverty it has regressed sharply and it still has not recovered nor will it recover in the short term. It is a long process with a lack of growth, with stagnation in many activities. It is evident that employment, above all, is not something that recovers from one day to the next after the multiple crises we have gone through.

That is why activism is needed, public activism, which has to do with distributing, but also with generating industrial policies, with improving education, innovation systems, with everything that has to do with an economy that is more adapted to climate change. , more resilient and also more dynamic. It is what we lack in the continent in general.

RFI: What exactly explains that fiscal collection historically in Latin America has been so low? I understand that today we are more or less at an average of 26% of the Gross Domestic Product. The average for OECD countries is more than 34%.

Ricardo Martiner: 26%, including the Caribbean. When we talk only about Latin America, that percentage is around 22%. It is very uneven because, for example, Argentina and Brazil have a tax rate above 30% on average as a percentage of their economy, and countries like Guatemala or Mexico have between 12 and 14 points, that is, very low levels of collection.

Therefore, there are many Latin Americans in this field and the important thing is to have sufficient resources and that cannot be achieved, of course, from one day to the next. There are structural issues such as the existence of the informal sector, significant weakness in the administrative systems, but there are also policies that, so to speak, have been applied in recent years and have resulted in this low collection. I think of the drop in tax rates for corporations, for individuals. They are neoliberal policies that have generated a fragility of the State, which has the consequence that we know in these difficult times.

I like to talk about the hope of Cartagena that can reaffirm the progressive nature of taxes. progressive, that is let there be a much more important income tax, a tax on wealth.

RFI: New governments have arrived in Latin America. The case of Chile is cited a lot, the case of Colombia, notably. They are two governments that are trying to carry out fiscal reforms. The answer is already known. In Chile, the majority of Congress said no. In Colombia, President Petro faces this type of situation. So, how to resolve or to fulfill all the promises that have been made?

Ricardo Martiner: Yes, there is a rather complex political situation in the sense that there is a lot of opposition and the new, more progressive governments have majorities or very slight ones or simply no majorities. It is then said that the OECD captures 34%, Latin America 22% and then that gap is very wide. Many countries, at least in their discourse, have suggested that it must be overcome. Eight points of GDP in eight years, for example. It is somewhat the logic of trying to find an objective in terms of tax collection or sufficiency of resources. How is that accomplished? With reforms, but not only with tax reforms that go to Congress. Also with improved administration, with a decrease in evasion, which are already political attitudes.

For a long time, governments, the authority, have had a long sleeve with the issues of tax evasion, avoidance or under-reporting. If the existing mechanisms are reinforced, there is a logic that requires not only tax reforms, but also a more powerful State muscle in matters that are already legislated.

There is hope there, there is a logic of important institutional strengthening. And there are other mechanisms that can somehow improve this situation, which has to do with, for example, royalties for certain activities, dealing in some way with the issue of excessive surpluses from large companies. At our institution we work on the issue of international taxation, that is, trying to make multinationals pay what they have to pay in each of the countries and then avoid this challenge that makes developing countries have or do not have the possibility of having those available resources. So there are ways, which are not necessarily from Congress, that may allow but address the entire gap.

RFI: The Government of Colombia has announced through its Minister of Finance and Finance the holding of a fiscal summit for Latin America and the Caribbean on fiscal issues. This will be in Cartagena de Indias, in Colombia, next July. How do you see this initiative?

Ricardo Martiner: Yes.We greet this initiative with great enthusiasm. The issue of tax coordination at the Latin American level is something that must be studied in depth, because the truth is that it does not exist at the moment. In Latin America, there are countries that are members of the OECD, others are not. So there has not been a true capacity for integration and coordination in this matter.

The Cartagena Summit is a unique opportunity, very well managed by the Colombian Ministry of Finance to convene the ministers and authorities of the region to effectively propose a continental integration and coordination plan. As is well known, taxation has always been something that belongs to the national authorities and for the first time coordination is being given an opportunity, because what globalization does in the end is also globalize everything related to tax policy. If there are going to be solutions, they have to be shared solutions and not through fiscal competitiveness or fiscal warfare.

RFI: For that purpose, given these unevenness or marked differences that exist between the Latin American countries to which you were referring. Is it really thinkable, imaginable that there could be a certain coordination of those countries in the region?

Ricardo Martiner: Yes, coordination can occur at various levels. The first, which will surely shine brighter at the Cartagena summit, has to do with having a common position regarding the initiatives that are being taken in various instances such as the OECD or the United Nations regarding international taxation and regarding the treatment of the large multinationals that divert profits to tax havens. There is a common goal that will probably lead to common actions.

The second level has to do in particular with the way to generate tax policies and not only administration, but also policies. What is important is the peer review that we can mention as such. That is, for example, why does Brazil have 31%, Mexico 15%? What was the difference? How can you learn from each other to generate a better balance, a better balance between the different countries in this matter? I believe that it is very important to collect the experience of other countries in order to effectively have a common logic.

We have always been in Latin America under the logic of the Washington Consensus, that is to say, basically liberalize the economy, believe in trade, generate value through commercial exchange. At the same time, essentially relying on more common indirect taxes such as the value added tax, that is, indirect consumption taxes, and sharply reducing taxes on individuals and taxes on trade. This model is already exhausted, because it also generates a deep distribution towards the richest of resources and national income.

Therefore, I like to talk about the hope of Cartagena, that somehow it can reaffirm the progressive nature of taxes. Progressive means that there is a much more important income tax, that there is a wealth tax. It is something that Colombia and Chile have had as fundamental initiatives of the reforms they have proposed. And that there be a logic of progressivity where those who have more pay more. Greater tax justice. It is a subject that is going to be debated in Colombia in a very profound way and it is the first time that this is going to be discussed.

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