How Boric’s New Social Contract in Chile Can Succeed | Opinions
Chilean President-elect Gabriel Boric has no choice. The one whose election is probably the most important political event in the country since the 1988 referendum which restored democracy after the Pinochet dictatorship assured that if “Chile was the cradle of neoliberalism, it will also be its grave “. If he wants to keep his promise and negotiate a new social contract, the 36-year-old president-elect will have to tackle tax reform.
Indeed, in Chile, taxation is the guarantor of the perpetuation of inequalities, the persistence of which has fueled social tensions close to the explosion in recent years. Those who praise the success of the Chilean model come up against implacable statistics. With the richest 10% of the country appropriating nearly 60% of the national wealth and the poorest half of the population receiving only 10%, it is one of the most unequal countries in the world.
This is proof, if it were needed, that reducing inequalities depends not only on redistribution policies, but also on a State capable of financing quality public services – particularly health and education – that are accessible to the greatest number. These efforts are not expenditures to be tracked down in the name of austerity, but rather investments that are essential to reducing inequalities. In our country, this engine failed.
With tax revenues of 19.3% of GDP in 2020, Chile is far from the average of 33.5% of the Organization for Economic Co-operation and Development (OECD), the club of rich countries of which it is proud. to be a member.
Worse still, our tax system is highly regressive, with a heavy reliance on indirect taxes, which mainly affect middle and low income segments of the population, while giving preferential treatment to large corporations. And tax evasion is wreaking havoc: We have calculated, for example, that between 2013 and 2018, our tax authorities lost between 7.5 and 7.9 points of GDP each year, i.e. 1.5 times the education budget. and 1.6 times the health budget.
The budgetary contract is therefore to be rebuilt, a gigantic undertaking. This means reforming value added tax, drastically reducing rates for basic necessities, medicines and books. Paying 19% less for milk or bread would make all the difference for the poorest households.
It also requires the introduction of a progressive tax on the highest estates and a tax on large fortunes. Less than 0.1% of the population, the very rich, have the equivalent of Chile’s GDP in their hands. Taxing their wealth at a rate of 2.5% would bring in some $5 billion, or 1.9% of GDP.
Finally, certain exemptions that only benefit high-income groups, whether multinationals or the wealthiest, must be repealed.
Of course, we can expect a showdown in Congress, which is half-controlled by the conservatives. This is why taxation must be at the center of discussions for the new constitution, which will be submitted to a referendum in the third quarter of 2022. The current text, approved in the midst of the Pinochet dictatorship, enshrines the neoliberal model by limiting the government’s ability to reduce inequality through taxation.
The constitution should adopt the principle of tax progressivity, with a clear definition: that is, effective tax rates should depend on the level of income or wealth, with wealthier citizens contributing more. Of course, these principles must then be translated into law by Congress. But having this text in the constitution obliges elected officials to be more transparent.
Affirming a principle of progressive taxation means allowing a possible popular and democratic majority to overhaul the fiscal pact. This idea was raised by Thomas Piketty, with whom I work on these issues within the Independent Commission for the Reform of International Business Taxation (ICRICT), during a recent exchange with a group of elected representatives from the Convention Constitutional Council, responsible for drafting the new Constitution.
Civil society has understood the urgency of seizing this debate, above all political, so as not to leave it hostage by technical bureaucrats favorable to the status quo. Thus, experts, NGOs and trade unions have just created a Citizen Tax Justice Network for Chile in order to submit concrete proposals to the Constitutional Convention.
By enshrining progressive fiscal principles in its new constitution, Chile can show the way for other countries. Because although it is a country of barely 19 million inhabitants located at the gateway to Antarctica, it symbolizes a global trend.
Everywhere, the top marginal rates of personal income tax and inheritance tax have been reduced, while net wealth taxes, once relatively widespread in OECD countries, have been abandoned by the mostly. Corporate tax rates have fallen dramatically everywhere, with companies taking advantage of an outdated international tax system to hide their profits in tax havens.
The rich everywhere are even richer two years into the pandemic. The combined wealth of all billionaires, estimated at $5 trillion at the end of 2019, reached its highest level ever at $13.8 trillion, according to a recent report by Oxfam. The world now has a new billionaire every 26 hours, while 160 million people have fallen into poverty over the same period.
Finally, the explosion of inequalities everywhere coincides with the explosion of climate change. The richest 10% of the world’s population emit nearly 48% of global emissions, whether they live in the North or the South, the richest 1% alone produce 17%, while the richest half poor of the world’s population produces only 12%. .
In Chile, as in the rest of the world, rethinking the tax pact, making the richest contribute more, is no longer a technical issue. It is a political question and in the face of the climate emergency, it is an existential choice.
The opinions expressed in this article are those of the author and do not necessarily reflect the editorial position of Al Jazeera.