Readings and Reflections

Although I already have addressed this issue in an earlier post, I am bringing it back after reading this interesting article by Joaquin Estefanía in “El País”.

In Spain the “social contract” implicitly signed between the State and taxpayers during the tax transition in the 70´s is gradually diluted with the current economic crisis: drastic cuts in public spending; decrease in the quality of public services and social benefits received so far; questioning about the fairness of our tax system; etc. … In other regions such as Latin America, they are building citizenship, so this “contract” has been strengthening their democratic consolidation: There is a strong growth of the middle class and the Welfare State, but there are still doubts about its efficiency in the short-medium term (as reported on pages 12 and 13 of this recent World Bank report).

So, It seems clear that in Spain and in many other EU countries (Greece, Italy, etc …) as well as in Latin America itself (hereinafter, LA) these contemporary “social contracts” have to be reformulated, since today they appear to be obsolete. Before having a split between the State and the citizen-taxpayer, it is necessary for the political authorities in each country to consider the new challenges of these agreements.

While Estefanía does not mention the tax system in his article, from my point of view, the tax system is (in its double aspect: income and expenses) one of the key points for the problems and solutions of these new, post-contemporary “social contracts” to be defined: the importance to define a tax system that would really be fair and equitable.

What mainly happens in Spain, is that our current tax system is no longer in line with the current economic structure of the country (with too much dependence on the income tax), we are under a lot of pressure from the EU to balance the budget and we do not have non-tax collection alternative, while in LA countries, the main problem lies in a low tax pressure, low quality of public services and usually they have large sources of non-tax revenues (natural resources, free trade zones, etc. …) which delay the implementation of strong tax reforms.

In your opinion, where are we heading? … Let’s keep thinking!

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