Fiscal Policy and Development February 2009
OECD Report When we speak of social development policies, in general we do not mention the fiscal issue, it is assumed as given. The OECD Report is important because it makes explicit the link between these two elements. The results of the tax system of a country provides a snapshot of the social contract that binds the government and its citizens In the transition to democracy, fixing or modifying the social contract is crucial. Different institutions are needed; a new social contract is needed.
There is a relationship between various elements of social policy and fiscal policy Poverty Expenditure Quality Tax exemptions Public Deficit Productivity Informality Social Policy Taxable base Inequality: Equal Opportunities Tax sources Job creation Tax rates Social Security Tax Collection Economic Policy Quality of Services
General problems A high percentage of the tax revenue comes from oil taxes (35%). Revenue from consumption taxes is low relative to labor taxes (16% vs 21% respectively). The composition of taxes affects job creation: the funds for social security come only from those who have formal employment. There is a large number of tax exemptions and loops in the tax system. There is a big tax evasion. Social spending in general is not progressive. A transparent framework for public expenditure (national and local) has not been completely established yet.
Fuente: Scott, John. Gasto Público y Desarrollo Humano en Informe sobre Desarrollo Humano México 2008-2009 Various social policy actions are regressive Social expenditure concentration coefficients 2006 Few social programmes and basic education Subsidies: agriculture, energy; formal social security Nota: Green refers to programs that use targeting strategies, blue refers to programs that do not use targeting strategies
General Solutions Changes in the composition of tax sources Reducing exemptions and loops Reduce tax evasion Tax reforms that increase revenues, conditional to a commitment on the destination (social) of additional resources. Improving the quality of public services Strengthen and make more efficient the evaluation and monitoring institutions in order to make public spending more transparent. Expand evaluation and monitoring to local governments. The danger of this financial and economic crisis is that we undergo a permanent increase in government spending without a tax reform, which would disrupt public finances and worsen the structural development conditions in Latin America.
Challenges in 2009 and beyond Social rights are not explicitly mentioned in various social plans and programs. Lack of coordination between social programs, formal social security and labor policy, which affects the fulfillment of universal social rights and generates few jobs: Low healthcare coverage. Very low coverage of social security Insufficient formal job creation Creating jobs is expensive... and uncompetitive
Specific Proposal: Foster a comprehensive advancement in the fulfillment of social rights Institutional changes in Social Security so that it can cover all Mexicans, regardless of their employment status. Universal healthcare, integrating the services of formal and informal working population. Quality improvement. Universal basic social rights. Social Justice Reduce the cost of social security contributions from formal employment to encourage job creation. Having a respectable and socially useful job is a social right. The scheme should be financed through general taxes Increase competitiveness, creates jobs and strengthens wages: poverty is reduced Citizens have rights but also obligations S. Levy, 2008 New Social Contract
A more organized relationship between social and fiscal policies Economic Policy Social Policy Tax sources Taxable base Tax rates Tax exemptions Tax Revenue Social Security (universal) Job creation Informality Productivity Poverty Progressive expenditure Inequality: Equal Opportunities Quality of Services Public Deficit
The evolution of the labor market has a direct impact on poverty 30.0 Food Poverty and total payroll, ENEU 20.0 10.0 0.0 1992 1994 1996 1998 2000 2002-10.0-20.0-30.0 Total payroll (percentage change) Abs.Dif Food Pov.