Uruguay: Anatomy of a Beautiful Reform
3 Comments Posted by Alex Guerrero on Tuesday, May 19, 2009 at 1:12 PM.
For more than a century and a half, Partido Colorado and Partido Nacional ruled Uruguay. But with the victory of Tabare Vazquez in the 2005 presidential elections, the left party Broad Front took office with a long-pending redistributive agenda.
One of the first priorities of the new cabinet was to introduce a fairer tax reform. In Uruguay, as it is usually the case of small nations, equality is a highly ranked social value. And it is also highly correlated with satisfaction with democracy across the region. Even if Uruguay's poverty line and inequality levels (0,45) are the lowest in Latin America, the long corporatist tradition of the country, tweaked by the liberalization in trade and capital unleashed in the 1990s, emphasized an unfair distribution of the tax burden, coming mainly from [formal] workers' shoulders and poor households' pockets.
Same tax burden, but a more equitable burden distribution
Tabare's government wanted to increase vertical and horizontal equality of the tax system, and to do so he had to reduce consumption taxes -which affects mainly to the poor- and increase the weight and progressiveness of income taxes.
The reform revealed the scheme of winners and losers: businessmen protested, and the most negatively affected groups demonstrated, mainly medical doctors, lawyers and other very well-paid liberal professionals. But again, a sense that equality was a social value to be pursued in Uruguay mitigated their resistance, adding to the countermeasures of this tax reform: a general improvement in the quality of government-provided services, especially universal healthcare.
Beautifully done, Tabare.
One of the first priorities of the new cabinet was to introduce a fairer tax reform. In Uruguay, as it is usually the case of small nations, equality is a highly ranked social value. And it is also highly correlated with satisfaction with democracy across the region. Even if Uruguay's poverty line and inequality levels (0,45) are the lowest in Latin America, the long corporatist tradition of the country, tweaked by the liberalization in trade and capital unleashed in the 1990s, emphasized an unfair distribution of the tax burden, coming mainly from [formal] workers' shoulders and poor households' pockets.
Same tax burden, but a more equitable burden distribution
Tabare's government wanted to increase vertical and horizontal equality of the tax system, and to do so he had to reduce consumption taxes -which affects mainly to the poor- and increase the weight and progressiveness of income taxes.
- Income tax levels became more progressive and went up for the richest, especially the 10% richest, who saw a 150% increase compared to the previous system:
- Consumption taxes went down for everybody, especially the poorest, who consume most or all their income:
- The tax burden became fairer, more efficient, less economically disturbing, and more Western European. Inequality post-tax and poverty levels dropped a little bit, but the whole system provided future governments with the right tools to raise more revenues if they are willing to expand further social policies. At the end of the day, equality is mainly achieved through social expenditure, not taxation --but you need to have the money first:
The reform revealed the scheme of winners and losers: businessmen protested, and the most negatively affected groups demonstrated, mainly medical doctors, lawyers and other very well-paid liberal professionals. But again, a sense that equality was a social value to be pursued in Uruguay mitigated their resistance, adding to the countermeasures of this tax reform: a general improvement in the quality of government-provided services, especially universal healthcare.
Beautifully done, Tabare.
Labels: democracy, development
An interesting excerpt:"Shame is the social emotion because it is the psychological force underpinning both conformity and obedience to authority. On the pressure to conform, we can look to Asch's (1952) experiments, in which each person around the table was asked to say which of two lines projected on a screen was the same lenght as a third. All except one of the people were stooges in cahoots with the expermienter and had agreed to give the wrong answer. The point of the experiment was to see what the one naive experimental subject would say when it came to his or her turn to say which of the two lines was equal to the third --after everyone else had expressed the same (false) opinion. After these experiments had been repeated a number of times with a succession of subjects, it was found that a large proportion of people tended to conform to the group opinion rather than give an answer which set them apart from others. When asked afterward to explain the answers they had given, people said they feared looking stupid, or thought others would think they "couldn't see straight." But interestingly, some of the people who conformed most appeared to be quite unaware that they had responded to any kind of group pressure" [1]
[1] Wilkinson, R. (2005) 'The impact of inequality: how to make sick societies healthier'
Spain’s Economy shrinks at a 7.2% annual rate until March 2009. Here an excerpt:
But still, the idea of being above 20% unemployment for such a long period of time is frightening.
Here is the complete country-briefing. It's plainly scary, even if in my opinion this analysis is misrepresenting the strong interdependency of Spain and the other European economies: as soon as the European demand will recover, factories making pieces integrated in continental supply lines (i.e. cars, planes, appliances) will restart production in Spain and tourists will flow in again.Despite some recent positive development (decrease in interest rates and prices, fiscal stimulus measures, slight improvement in confidence, ECB purchase of cédulas hipotecarias…), Spain will not recover even as other economies begin to breathe again. The worst year undoubtedly could be 2011, and the unemployment rate by that stage could reach anywhere between 25% and 30% of the labour force if you accept the March 17.5% number as good.
Bottom line, a complete nightmare, with the only bright spot being imminent control of the political system being assumed in Brussels and Frankfurt, since along with the economy the political “automatic stabiliser” system also seems to be broken.
But still, the idea of being above 20% unemployment for such a long period of time is frightening.
Labels: españa
In Brazil, because people pay very high taxes when buying stuff -indirect taxes- and income taxation is so low and barely progressive, a very poor family will pay 33% of their total income in taxes, meanwhile the super rich will have to pay just 23%.
In Brazil, income inequality has historically been among the highest in the world, despite some modest improvements under Lula.
In Brazil, several attempts to reform this crazy tax system since 1995 have repeatedly failed to be enacted. In every attempt, party discipline evaporated and some members of the Parliament switched to the other side of the aisle just before the vote, or there were "sudden" corruption scandals in the media discrediting the reformist government of the time.
Write your own conspiracy theory down here...
Labels: Brazil, development
