A couple of days ago The Guatemala Times published an interesting post entitled: “International Community agrees: Guatemala urgently needs fiscal reform” and I wanted to pull out a significant statistic:
“Today and yesterday many of the 150 country delegations that participated at Conference for Reconstruction and Transformation of Guatemala expressed their support for the plan proposed by the Government of Guatemala. At the same time it seemed clear to most international participants that Guatemala will never be able to move towards development if the tax revenues stay below 10% of the GDP, the lowest in the region, even lower then Haiti.
The Sub- Secretary of the United Nations (UN), the Mexican, Alicia Bárcena, who is also the executive secretary of the Economic Commission for Latin America (CEPAL) warned: “no country in the world collecting less then 10% of GDP and with a public spending of only 4.5% of the GDP, can exercise effective management, it is a State without the power to act”.
I sent this along to a few friends who are businessmen and know Guatemala to get their take on this. I, of course, have my own theories, but here’s some of the comments they sent along:
Maybe this is the foundation of how to attack it: “It is a problem caused by severe social inequality, a weak state, very low governmental budget and therefore a weak organizational and coordination response of the actions needed to tackle the problem.” Let us turn this into the advantage.
We go after the financial side and make it even more community driven. We also allow the information to flow freely. Some very interesting possibilities for collaboration between two awesome organization here, yet informal. Hmmm I see a lot of interesting approaches from this conclusion. – Erik
“I was startled to see just how low the tax collection and the government spending %s are and I look forward to seeing your elucidation of different approaches to the problem.
Our attorney in Guatemala, Gladys Porras, worked for SAT (the Guate equivalent of the IRS) as a trial attorney in tax evasion cases and recently left the agency to go into private practice. Every day she had a new case in a new town for 3 years! She told me that during that time the SAT estimate was that the % of citizens who had income sufficient to require the filing of tax returns and that voluntarily complied with the requirements rose from 40% to something over 50%.
That tells me that not the very rich and the kind of rich people evade taxes but also the middle class (I don’t think the poor are required to file). So it is endemic, which is not surprising due to the prevailing culture of rampant corruption in the country.
In the article Pres. Colom says that the business community is blocking tax rate increases. I believe that but I also believe the average citizen is against increased tax rates as they have no reason to believe that the government would use the increase in revenues to benefit them. Based on history, this is a perfectly logical conclusion.
So, if not from the rich (who have almost all the power), the middle class (who do not have much power) and the poor (who only have power when they are in outright revolt — and just why would they revolt in favor of a concept so unappealing on its face as taxes — then where could the pressure for fiscal reform originate?
Here are my off-the-cuff responses to the question, listed in order of importance and potency:
#1: The international community. The conference referred to in the article undoubtedly was initiated by that external force (just as the fledgling moves towards legal reform in Guate was caused by the US and the UN). So that means the US government and multi-lateral agencies such as the UN, IMF, the World Bank, and the IDB. They threaten to cut off aid, military supplies, loans etc., if fiscal reform does not happen. They are the ones that posses Big Carrots and Big Sticks.
#2: “Enlightened” business interests. Just as Warren Buffet, Bill Gates and some other mega-billionaires are pressing for the continuation of estate taxes in the US, some big players in Guate such as WalMart, Big Chicken (Pollo Campero) etc. could come to the realization that the development of a stable, growing economy which benefits the majority of citizens (a.k.a. consumers) is key to greater profits and get behind financial/fiscal reform. This group possess Big Carrots (a.k.a. money for politicians) but few if any Big Sticks as it is well known that businesses everywhere hedges their bets and buys the corporation of all political elements (and that all such elements, left, right and center, are eminently and equally subject to these thinly disguised bribes).
#3: The pollis (the Latin term I use for the general population although in Rome pollis was just those eligible to vote, not the general population) has no Big Carrots but does have a Big Stick as it posses the power of extreme disruption and outright insurrection. Interestingly, while the demands of groups one and two would be, first and foremost, more revenue for the government to spend on services to the public, the pollis would demand just plain more services. (The pollis never worries about where the money for government services comes from.)
So, as I see it, the ideal analogy for the causation of fiscal, financial, and democratic reform in Guatemala would be a pressure cooker. Heat from the outside (see #1), an inflamed “water” (the pollis — see #3) and a shaky lid (big business, see #2, which sees that all this is bad for business) that tries to hold things together. Now, if I could only solve my own personal problems ….
When I ask mi mama if she ever paid taxes, she sucks her teeth and says the equivalent of “Please, do you think I’m stupid?” Mi abuela retorts: “What for? So the crooks in the green palace get it?”
I honestly think it has to do with trust – among classes, from class to state, from individual to individual, organization to organization and business to business. Mix and match any of these combinations and there still isn’t any trust any way you put it. There is a certain fabric of trust that is missing for many reasons, but on the national level many people, even the middle class are against paying taxes because they don’t trust the government (how could they after the war and now the syphilis experiments, it takes two to tango on all these occasions) to look after their interests or well-being. It never has, why would we expect anything different? The wealthy are used to looking after their own interests and doing whatever they want as long as they have money; the middle class is barely scraping by and they certainly don’t trust the rich to pay their share or the governent to take care of them; the poor are in the daily struggle and all the nonprofits (local ones in particular) provide the band-aids when the whole thing is hemorrhaging.