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April 18, 2016
The region of Latin America is a modern-day example that the global trend of increasing economic inequality can be reversed. Central to its reversal is whether or not the political will exists. Despite Latin America’s rather poor equality track record having been recognised as the most unequal region in the world; it is the only region to have reduced inequality in the last decade. A large part of the region’s success is the result of the right mix of government policies that have focused on the poor. This has been achieved mainly through increasing the expenditure on health and education over the last 14 years. A large proportion of the region’s poorest citizens have been able to access essential services without having to become indebted to pay for them. Education has not only been an equaliser for Latin America’s youth but it will also stimulate innovation, entrepreneurship and growth throughout the region.
This is by no means the end of the road and despite advances such as increasing the minimum wage, public pensions and employment opportunities; Latin America still remains the world’s most unequal region. Although millions of livelihoods have been secured, almost 30% of the population still live in poverty. Meanwhile the 2014 annual income of Latin America’s 113 billionaires equals the combined public budget of El Salvador, Guatemala and Nicaragua. That same annual income is equal to the public health expenditure of 9 countries in Latin America.The question as to whether Latin America can remain a good example for the world and maintain and sustain the reduction in inequality and poverty will be answered in 2015. If Latin American governments continue to invest in health, education and social protection; if alternatives are found to the primary commodity exports in order to sustain growth and, if progress is bolstered by progressive economic reforms then the region will more than likely continue to lower poverty and inequality.
With Latin America’s growth largely down to the commodity boom, several of Latin America’s economies depend on oil and other extractive industries. This makes their economies vulnerable and has brought about the current stalling of the region’s economy. New drivers of growth are needed along with the diversification from primary commodity sectors to sectors which can create a number of jobs. The main challenges of growth, job creation and inclusion are closely intertwined. For example, growth provides Latin American women with job opportunities, and their participation in the labour market is also part of the region’s growth and poverty-reducing equation. In recent years there has been a steady increase in women’s participation in the labour market, but as in many of Latin America’s countries they are much more likely than men to hold low-paid jobs. Closing the substantial gender wage gap will go a long way to equitable and sustainable development, translating into further growth and a reduction in inequality.
The reduction of inequality in Latin America can also be achieved through progressive taxation which has been an under-used tool in the region so far. The low tax collection levels in Latin America are in stark contrast to the greater social needs with the tax systems largely skewed towards benefiting the wealthy few rather than the majority of the population. With more than 50% of tax in Latin America coming from consumption taxes such as VAT, the poor are devoting a greater share of their income than the wealthier population to pay taxes. Furthermore, the corporate tax exemptions in the region amount to approximately U$D138,000 million per year. In the Dominican Republic, tax exemptions for free zones, tourism and other industries stand at U$D720 million which is more than double the health budget. In Nicaragua in 2008, tax exemptions stood at U$D415.6 million, almost 40% more than the Ministry of Health’s total budget for that year. Tax evasion is an enormous problem in the region with estimates that the money hidden in tax havens would be enough to lift 32 million people out of poverty. To put that into perspective, that is all the people living in poverty from Bolivia, Colombia, Ecuador, El Salvador and Peru.
The leaders of Latin America need to improve their domestic resource mobilization systems and cooperate with one another to stop the race to the bottom on corporate tax exemptions. Latin American leaders would also improve the situation by demanding a say in the G20 and Organisation for Economic Co-operation Development (OECD) led negotiations to bring about reforms to the global tax rules for limiting illicit financial flows. Courageous steps have been taken by many Latin American leaders in the last decade and the successes speak for themselves. However, this is just the beginning and even more courage and reforms are needed in order to achieve an economic system which will dislodge the deep-rooted inequalities and bring equal benefits in the long term to all Latin Americans.
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