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ECLAC Suggests Measures For Increasing Tax Revenues

Mike Godfrey, Tax-News.com, New York

26 June 2013


Alicia Bárcena, Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC) said on June 12, 2013 that investment in education, science, technology and infrastructure, along with improvements to the budgetary framework and better tax evasion controls, are key to raising the level of tax revenues in the region.

The senior United Nations official was one of the main speakers at the International Seminar on Tax Policy: Challenges and Trends, organized by the Centre of Public Finance Studies (CEFP) of the Mexican Chamber of Deputies, in conjunction with ECLAC and the Organization for Economic Co-operation and Development (OECD).

According to Ms. Bárcena: "Thanks to a series of reforms, the tax burden has moved in the right direction over the past decade, and this has facilitated a significant rise in social spending. [...] However, tax policy still has a low impact on countries' fiscal policies in general, which is reflected in the low level of tax receipts."

According to ECLAC data, the average tax burden of Latin American countries was just above 14 percent of GDP in the period 2000-2011, compared with 11.5 percent between 1990 and 1999, while the region's social spending rose from 10.2 percent of GDP in 1990 to 1995 to 14.3 percent between 2005 and 2010.

In Mexico, the tax burden decreased slightly in 2000 to 2011 to 9.3 percent of GDP, having risen to 9.6 percent in 1990 to 1999, while in Brazil the figure rose from 18.4 percent of GDP in 1997 to 1999 to 22.3 percent between 2000 and 2011. In Argentina, it rose to 16 percent in 2000 to 2011 (from 12.3 percent between 1990 and 1999) and in Chile it increased from 16.1 percent to 17.3 percent in the same time period.

ECLAC figures on all the region's countries with official information available show that social spending levels have risen in comparison with the five-year periods 1990 to 1995 and 2005 to 2010.

Cuba is the country that spends the most in this region, with 36.6 percent of GDP between 2005 and 2010, followed by Brazil (24.5 percent), Argentina (23 percent), Uruguay (21.4 percent), Costa Rica (19.3 percent) and Bolivia (17.5 percent). Chile's social spending was 13.9 percent in this period, while Mexico posted an average of 10.1 percent.

Ms. Bárcena stated "Increasing collection requires, inter alia, reducing tax expenditure, limiting special regimes, strengthening fiscal federalism and increasing income tax collection".

She added "We believe that public finances need to respond to a progressive fiscal policy. We must focus on investment (especially in human capital) and assign resources for future generations".

According to Ms. Bárcena, "Mexico invests 23 percent of GDP in total, but investment in research and development stands at just 0.39 percent, which is much lower than other countries such as the United States (2.9 percent) and Sweden (3.4 percent). Mexico has the means to become a knowledge and information society."

She also emphasized that tackling cyclical fluctuations in the economy required reducing the dependency of fiscal revenues on the exploitation of natural resources: "We must discuss natural resource governance. It is vital to decide how to distribute the productivity resources generated from natural resource exploitation."

Regarding the fiscal covenant, Ms. Bárcena declared that it is essential to achieve a social agreement, based on the principle of reciprocity, concerning the origin, destination and composition of the resources needed to finance the State.

She affirmed "We must create a virtuous circle between collection, public management, accountability and empowerment of society, so that people see the concrete results of policies. This is the basis for a covenant. Also, Mexico has a unique opportunity to use a new perspective to achieve the right balance between State, market and society."

TAGS: Finance | tax | Chile | Uruguay | fiscal policy | budget | Organisation for Economic Co-operation and Development (OECD) | Mexico | education | Bolivia | Brazil | Costa Rica | Sweden | United States | Argentina | Cuba | research and development

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