Rich country, poor government. Poor country, rich government.
The title of this column is a very old reflection, attributed to Spanish scholasticism. It fits perfectly in these Pandemic times, when countries are facing deteriorating public finances and stunted economic growth.
The recovery strategies of nations are in two poles. Some seek to recover by rebuilding their finances by increasing taxes and levies, i.e. "tax reform", or "I charge you more to keep spending and that boosts demand". And those who consider a "fiscal reform", that is to say, to achieve a relaunch of the economy through spending efficiency and productivity and with an additional income component. They think, "in order to increase taxes efficiently, I must reduce and redirect spending to activities that help growth". If we project these policies in the medium term, through the "tax" route, we would have an impoverished country with a rich government. By a "fiscal" reform, an impoverished government, especially the politicians, but a nation with growth towards wealth.
It can be argued that realities are neither black nor white and that what accommodates is a "mix" of the extremes. But for this to happen, there must be political premises that do not exist. The first is that the political animal that governs is willing to sacrifice its future elections or incur in "political costs" by having to reduce payroll expenses, subsidies and favors. Another premise is not recognizing that in the short term there is more impact by spending less than by expecting to recover more.
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The other premise, very dangerous for future sustainability, the "taxationists" dream that they can easily raise duties, rents or taxes on public concessions such as ports and mining. Anyway, say these value suckers, "they don't vote and neither do those who use those services" referring to the services that serve the world. It's hard to be more stupid. And I explain below.
A large part of the income and dynamics of the Panamanian economy depends on its international logistics services. And not because of the rents or fees that these services pay to the State, but because of the derivative activities that they generate and tax. The Panama Canal, for example, contributes only 8% of GDP through its direct income. But indirectly the Canal makes possible another 25% of GDP in related activities, including ports. To add more costs to the logistics locomotive is to slow down all the wagons it has been pulling!
The "taxpayers", before continuing to dream, should make a sober analysis of the current disproportion of expenditures to revenues. The most optimistic projections of increased income are nothing, in the face of the enormous expenditure in state bureaucracy and political gifts. I only give an example, the concession of Minera Panama where the State receives $27 million per year is considered a "robbery". Now let's say we manage to get paid 20 times more (2000%) or $540 million per year. This is barely enough to pay a little more than one month of government salaries, $400 million a month. What did we solve?
In closing, I quote Ronald Reagan. "When a person or company spends more than it earns, it goes bankrupt. When a government spends more than it earns, it bills you."
