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Fiscal Policy should Foster the Transformation of Development Models, Including Aspects of Growth and the Reduction of Inequalities

17 May 2023|News

ECLAC Executive Secretary, José Manuel Salazar-Xirinachs, presented the conclusions of the XXXV Regional Seminar on Fiscal Policy, which ended at the organization's headquarters in Santiago, Chile.


ECLAC's Executive Secretary José Manuel Salazar-Xirinachs
ECLAC's Executive Secretary José Manuel Salazar-Xirinachs, during the closing session of the XXXV Regional Seminar on Fiscal Policy.
Photo: ECLAC

Fiscal policy should not only help to navigate the needs and urgencies in the short term, but also the transformations of development models in the longer term, including both aspects of growth and reduction of inequalities, said José Manuel Salazar-Xirinachs, Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC), at the closing of the XXXV Regional Seminar on Fiscal Policy, which concluded on Wednesday, May 17 at the organization's headquarters in Santiago, Chile.

After three days of discussions in which the challenges of fiscal policy to boost economic and social development in the region were analyzed, the authorities and participating experts agreed that the global and regional macroeconomic environment is complex, making it difficult to conduct macroeconomic policy with delicate balances and decisions. They also recognized that most countries have seen their debt rise to high levels, have limited fiscal space, and financing costs have risen.

"Unfortunately, these constraints on growth and development are occurring in a context of not only a short-term economic slowdown, but an endemic problem of mediocre growth in the region since at least 2014, which makes it difficult for us to finance so many needs. Therefore, we must look at the promotion of growth as an integral part of fiscal policies, not as an external factor," said ECLAC’s Executive Secretary.

"ECLAC has been advocating the promotion of fiscal policies that contribute to boosting growth and sustainable development in the region. This requires updating fiscal compacts, based on a framework of public finance sustainability focused simultaneously on strengthening revenues and better use of resources on the expenditure side," added José Manuel Salazar-Xirinachs.

The seven sessions held during the seminar covered topics such as the presentation of the proposal for a regional fiscal cooperation platform promoted by Colombia, Chile and Brazil, with support from ECLAC as Technical Secretariat; the presentation of the report Public Debt and Development Distress in Latin America and the Caribbean, which concludes that the increase in debt servicing, especially due to higher interest payments, forces countries to allocate more and more public resources to guarantee debt sustainability. This leads to sacrifices in public investment and social spending to the detriment of inclusive, sustained and sustainable growth.

The session of international organizations also examined different options that countries in the region could consider to strengthen revenue collection and the progressiveness of the tax structure, as well as to improve the quality of public spending. The importance of strengthening public revenues was highlighted in the presentations of the ECLAC document Fiscal Panorama of Latin America and the Caribbean 2023, and the report Revenue Statistics in Latin America and the Caribbean 2023, a joint publication by ECLAC, the OECD Centre for Tax Policy and Administration, the OECD Development Centre, the Inter-American Centre of Tax Administrations (CIAT) and the Inter-American Development Bank (IDB)

"Average general government revenue collection for the region recovered to its pre-pandemic level in 2021, reaching 21.7% of GDP, but even so, the region is well below the OECD level of 34.1% of GDP," Salazar-Xirinachs said.

On the last day of the Regional Seminar on Fiscal Policy (Wednesday, May 17), two sessions were held, one on revenue policy for sustainable development and the other on the importance of public spending for inclusion and growth.

The first highlighted the need to consider reforms to personal income tax, including a review of marginal legal rates, taxable bases, the treatment of various types of income, as well as strengthening the taxation of high-income earners and high net worth individuals. The second session analyzed the importance of implementing improvements in public spending from a strategic perspective to improve its effectiveness in reducing social gaps in poverty, education and health, and to boost economic growth.

The XXXV Regional Seminar on Fiscal Policy was attended by authorities from the Ministries of Finance of 14 countries in the region, as well as experts from international organizations, non-governmental organizations and academia. Representatives from the IDB, CIAT, the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD) also participated. The meeting was held under the auspices of the Spanish Agency for International Development Cooperation (AECID).