The virtuous ordering of public accounts

There is no single way to order public accounts and avoid a large fiscal deficit, but several and diverse. But for the order to be virtuous, it is essential to transform the regressive structures of public revenues and expenditures as part of a strategy aimed at dismantling the concentration of wealth and decision-making power.

It is possible and desirable to achieve the ordering of public accounts and avoid a large fiscal deficit, but not in the way imposed by the dominators by reducing public investment in social and productive infrastructure that punishes middle and popular sectors. There are virtuous options that do not punish the majority of society, but establish that those who profit from the concentration of wealth pay taxes according to their assets and income, prevent tax evasion with the consequent flight of ill-gotten capital, and eliminate subsidies in favor of privileged actors that drain public spending.

In plain words. It makes no sense to solve fiscal deficits with adjustment and recession. This formula conceals interests and privileges that are indefensible in the open, punishes the victims, and favors the perpetrators. It is an institutionalized appropriation imposed by sectors of politics, the media, and the judiciary that respond to the economic power.

A virtuous ordering of public accounts implies a change of course and way of functioning, ensuring, among other aspects, the following.

• That the ordering of public accounts is part of a strategy aimed at dismantling the unbridled concentration of wealth imposed on society. In particular, that this concentrated wealth sustains public investment that serves the people and finances strategic nodes of inclusive economic development.
• That the most vulnerable be cared for with essential services and a firm development of the various sectors of the popular economy.  
• That nature, the planet that shelters everyone, be protected reversing what generates climate change and the annihilation of non-renewable natural resources.
• That this order expresses the decisional sovereignty of the country to sustain itself free from the submission imposed by dominators of various kinds.
• That the order joins the effort to ensure a valuable diversity of mass media, a judiciary system not biased towards protecting the interests and impunity of the dominators, an advance in the clarification and social organization.
• That the virtuous ordering of public accounts is based on a firm political coalition aimed at reversing impositions and privileges.

In what follows, we point out some of the main measures required to solve a fiscal deficit in a virtuous way, highlighting what each one contributes and also the resistance that it has to face.

Transforming the regressive structure of public revenues

Dominators seek to cover up the highly regressive nature of the current structure of both government revenue and public spending. On the revenue side, the greatest revenue burden falls on the middle and popular sectors while the high-income sectors pay relatively less. There are two reasons for this.

The first reason is that consumption taxes weigh more heavily on the tax structure than taxes on profits and wealth (such as the personal property tax, in the few countries where they exist). The serious thing is that consumption constitutes a very large proportion of the income of middle and especially popular sectors while it is not for high-income sectors. In this way, those who have less pay proportionally more taxes than those who have more.

The second reason makes tax evasion practiced by large taxpayers a known and insufficiently suppressed crime. To make matters worse, these same large taxpayers do not pay all the taxes that would correspond to them, but rather they hire specialists in tax avoidance (a “quasi-crime”) to minimize their tax liability by taking advantage of the imperfections (loopholes) of current regulations.

This is a tremendous fiscal injustice. While high-income taxpayers evade or elude taxes, the majority of the population is forced to pay taxes every time they consume a product. When it is pointed out that a regressive structure of taxes prevails, a correct technical expression is used, although often without explaining that this regressive structure of taxes contributes to generating very serious inequalities. Understanding this impact is essential to advance in popular clarification since inequalities do not emerge by chance but appear as the results of a distributive struggle between dominators who appropriate income that does not belong to them and broad middle and popular sectors that lose them.

What we should do? Urgently transform the regressive tax structure knowing that those who benefit from the current tax laws will have to be confronted. Their resistance to change reflects the greed and selfishness with which they impose privileges and set the tone for the formation of a powerful political structure in order to remove those privileges. This implies advancing electorally by strengthening the capacity to implement the mandates received.

Redirect public spending by eliminating unjustified allocations

In relation to public spending, cover-up maneuvers are repeated to leave fundamental aspects of the allocation of public resources out of the political discussion. Because the way in which the available resources are allocated conditions the course that is imposed on the country. It is not a technical discussion between specialists, but the approval of budget items at the national, provincial, and municipal levels, result from a power struggle between actors to impose very different interests, needs, and desires.

Budgetary decisions cannot be resolved behind the scenes on the basis of agreements that are not made explicit. In a democracy, it is critical to make transparent the criteria used to define priorities in the allocation of resources and then to account for whether the mandates received have been fulfilled. This democratic action is an essential component to understand how the different political groups behave, whether they defend the covert interests of power groups or the majority sectors permanently punished.

One of the most onerous cover-ups usually occurs when public spending items are allocated to subsidize large corporations providing basic services while items are withdrawn from the support of the popular economy that represents between 30 and 60% of the population depending on the country. How is asymmetry justified? Although it is possible that some subsidy is justified to contain accessible utility rates for popular sectors, it usually happens that the main purpose of the subsidy is to maximize profit rates to the service providers that are part of the dominant group. In these cases, unjustified subsidies are imposed by oligopolies that abuse their market power, abuses detectable if the real cost structure of those claiming the subsidies were known, information that is jealously withheld.

At the same time, it is essential to compare the different social and economic impacts of each budget allocation depending on the country project being defended. Although some proportions of investment in different sectors of activity should be respected in different country projects, in a sovereign, fair, and inclusive country project, supporting the massive mobilization of the popular economy will have a high priority. The miserable items that are usually devoted to the immense sectors of the popular economy do not correspond to the powerful role that they could play as different new engines of development.

The popular economy requires significant resources to finance a comprehensive support program. Although there is no single form of support, the writer of this text especially values a simultaneous intervention in two critical dimensions. On the one hand, to assist the organizations of the popular economy to establish developers of productive enterprises in their territories with population accessing jobs and decent incomes. At the same time, form trusts specialized in investing in these ventures.

So far, the example chosen (subsidies to economic power versus support for the popular economy) that helps to understand the different forces that struggle to guide public spending. The same struggle occurs in other budget allocations such as flood control and irrigation systems, the paving of roads and neighborhood paths, educational and health projects, the establishment of popular markets, among many other possible uses of public spending. It is important to note that if these allocations favor powerful actors, the cost of works and services should be covered by applying the rules of contribution of improvements. On the other hand, to favor low-income sectors, it is necessary to use non-reimbursable resources or contributions that cover only part of the costs.

An aspect of utmost importance in the management of public expenditure is the criminal appropriation of resources through leonine contracts to carry out public works. An opprobrious fact derived from the ability of large companies to win these contracts by paying bribes to those who decide to award them. This requires effective control of bidding processes. At the same time and as far as possible, it would be useful to segment public works contracts so that medium- and small-sized enterprises can also participate in the execution of the works. In another text we cover something else on how to deal with a fiscal deficit.

We close these lines by reaffirming as a synthesis that the ordering of fiscal accounts can be virtuous in protecting vulnerable or low-income sectors or, on the contrary, it can be part of a process of appropriation of public resources carried out by privileged sectors that impose the concentration of wealth and decision-making power.

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