SANTIAGO, Chile–Latin American and Caribbean countries registered an average global deficit of 2.4 per cent of GDP in 2013, but their fiscal revenues rose and kept their public debt situation stable, giving them more room to increase investment and social spending, according to a new study by Eclac.
In its Fiscal Panorama of Latin America and the Caribbean 2014, the organisation contends that while public spending increased significantly in the last two decades region-wide–especially on education and health–institutional reforms must be expanded upon to improve the quality and transparency of spending since both are key to achieving a fiscal pact that promotes greater economic growth with equality.
The document was presented during the first session of the XXVI Regional Seminar on Fiscal Policy, which was inaugurated by Executive Secretary of the Economic Commission for Latin America and the Caribbean (Eclac), Alicia B�rcena."Forging fiscal pacts that promote equality is essential for a sustainable future," she said.
"These pacts must be firmly rooted in broad social agreements and their goals must be clear: to increase tax flows and make them progressive, reduce evasion, and capture more income from natural resources."According to the Fiscal Panorama 2014, Latin America's public debt was close to an average 31 per cent of Gross Domestic Product (GDP) in 2013, with nearly equal parts external and domestic debt.A significant decline in interest payments was also registered in the last few years.
The situation is different in Caribbean countries, where public debt is much higher, with an average that surpassed 76 per cent of GDP in 2013.Meanwhile, the region's fiscal income as a whole increased to 0.7 per cent of GDP in 2013.According to Eclac, the region's fiscal position is mixed and efforts to consolidate it must be intensified in those countries with financing difficulties.
The organisation added that in addition to ensuring economic solvency, fiscal policies must also contemplate available income distribution, medium-term growth and sustainable development.The study shows that although environmental criteria have been incorporated into recent tax reforms, challenges persist, such as devising clear and transparent policies to subsidise fuels and including redistributive considerations in the design of "green" taxes.
In redistributive matters, the Fiscal Panorama shows the limited impact of fiscal policy on taxation systems, since the progressive effect of income taxes tends to be small and is offset by the regressive impact of the value-added tax (VAT).Regarding transfers, Eclac's report says they have a strong effect in countries where pension system coverage is significant, especially in Argentina and Uruguay, and a moderate impact in the rest of the region.
Finally, the document shows that increased social spending has been important in the recent improvements of the Gini coefficient–which measures income distribution–at a regional level.