Who will pay the cost of our self-inflicted covid crisis in Latin America?
The economic effects of covid-19 can greatly aggravate the situation 52 million people in Latin America, who could become members of the infamous club of impoverished people in the continent. They would join another 40 million people who would lose their jobs in the near future.
Life for 53% of workers in the informal sector in Latin America, which is equivalent to about 140 million people will change drastically as they will be the ones paying the high cost of the self-inflicted economic crisis.
The current pandemic is hitting hard in a Latin America that continues to be the most unequal region in the world in terms of income distribution.
In the region, there are many people who usually do badly and others, a few, who do well permanently.
Thus, the existing inequity means that in the countries of the region the rich live like the rich and the poor like poor. These poor rarely exit the cycle of poverty that results from political decisions made by their leaders, who operate to please their foreign handlers.
The economic effects of the COVID-19 pandemic can further aggravate the situation since 52 million people could fall into poverty and 40 million could lose their jobs, mostly women, who are the most affected group.
This would mean going back to the social and economic situation of 15 years ago. Some of these people may also come from the vulnerable middle classes that grew in recent decades to account for 40% of the population but who also now see their income at risk and fall into poverty to swell the ranks of those who will pay for the crisis.
Meanwhile, those who never pay for crises see their wealth grow in the context of the current pandemic. The Oxfam Intermón report titled “Who pays the bill” shows, with calculations based on Forbes data, that between March and June, eight new billionaires have appeared in the region, that is, a new one every two weeks.
The wealth of this super-millionaire elite has grown more than $48 billion, up 17% since mid-March. However, this group, will not pay taxes on those earnings due to tax avoidance schemes or tax evasion practices.
According to Oxfam Intermón estimates, the loss of fiscal revenue for 2020 could be close to 2% of gross domestic product, that is, 113,391 million dollars, equivalent to 59% of public investment in health throughout Latin America. For this reason, urgent, profound and extraordinary fiscal measures are necessary, while correcting the deficiencies of the past. Unfortunately, such measures will affect the same 92 million people who are on their way to poverty.
In the short term, a series of temporary actions, urgent and immediately applicable solutions, are needed to partially cover the drop in public revenues. Those measures will be three-fold: indebtedness, cuts in basic public services and a rise in the tax burden.
For example, suggestions to be applied in all Latin American countries include a tax on net worths starting at 1 million dollars and on people whose home is worth 300,000 dollars or more. There is margin of collection among those who have the most because in the region, the richest 10% of the population barely pays an effective rate of 4.8% on their income.
In the medium term, experts call for regaining society’s confidence in politics, and specifically in fiscal matters, moving towards a new social pact for the construction of a modern tax model based on principles of sufficiency, equity, gender and environmental justice; all of which will put the region in an even worst situation that it is now, since governments have shown to be unable to properly manage public funds. Governments are great collectors of tax revenue, but they are lousy managers of the funds.
As the region continues to fall into an even bigger poverty pit, politicians and ideologues advocate for a reform agenda that will impose social justice and promote less inequality, which will make the current tragedy even worse. It is extremely likely that the so-called reforms will be more the same: cuts in public spending, increased indirect taxes, decreased labor rights, privatization, etc.
With the funds raised with the new measures, promoters say, it would be possible to invest more in the common, in what reduces inequalities, such as public health, education and social protection services. That is the story they sold throughout the 20th century, but it is not the reality that people experienced. The money collected via taxation was almost never invested in improving the lives of people who faced the greatest odds. It all went to those in power and their families.
Those who never pay for crises should be prevented from making their interests prevail over those of the majority, trying to capture the State for their own benefit, so they can guide policies and laws in their favor. Those who always say that public programs and services are ineffective are the same who line up first to receive bailouts from the taxes and debt assigned to the many so they can enjoy easy access to credit, tax cuts and improvements in their business conditions while passing the bill to those who always pay.
On the other hand, the international community has a relevant role to play in supporting the Latin American region to seek a better way out of the crisis. That does not include acquiring more debt. That governance model does not work, as the 20th century has shown.
The pandemic is a global issue and the search for solutions must also be led by International cooperation, in the form of Official Development Assistance within the framework of a new development agenda that must continue to be robust, strategic and focused on reducing development gaps in the region.
A few examples of what should be done is creating foreign debt relief measures, as well as the realization of reforms of the international tax system so that multinational enterprises no longer have access to tax havens.
If the transmission belt of inequality is not stopped once and for all, the contagion of economic and financial catastrophes that have been reinforced by corrupt, power-thirsty politicians will spread for generations.
Let us make sure that the burden of this crisis -caused by governments’ poor management practices- does not fall only on those who always pay for it.