Asier Hernando Malax-Echevarria discusses what looks like an important advocacy win
The Argentine Senate has just passed the ‘Solidarity and Extraordinary Contribution of Great Fortunes’ law, a one-off tax intended to help cover the costs of the COVID19 pandemic in a country where it has so far killed 40,000 people. The tax will pay for medical supplies, assist small and medium enterprises, support student scholarships, social developments and natural gas projects.
The tax will be levied on Argentina’s 12,000 richest people, just 0.02% of the population, who have declared assets of more than US$2.5 million. will be collected through a one-time charge of 2-5.25% on individual assets that the Argentine government expects to raise some $3.5bn.
Many countries (including the UK) are discussing it, but Argentina is the first to actually do something concrete. As important as what the money collected can provide is that the new tax sows a seed/establishes an important precedent.
As prestigious economists such as Piketty, Stiglitz or Zucman have been pointing out for some time: “If the richest do not end up bearing a proportional part of the economic burden of the pandemic, neither the national collection of taxes such as income tax nor even the international coordination of business taxation will be sufficient.’
These economists are asking for a lot more than the Senate of Argentina, demanding radically higher Covid-related taxes on wealth at a time of calamity and collective losses.
The history books show similar events. They remind us that at a time when the need is at its greatest, windfall taxes on the most profitable companies have been adopted in countries like the United States, Japan, Germany and France after World War II or Ireland with the financial crisis of 2008. Tax systems have often been more progressive in times of war. The US raised top income tax to a peak of 80% during World War I and 95% in World War II.
It should have been done before, not just in Argentina but across Latin America, because it is a region of obscene contrasts. There is extreme wealth in all its countries, yet the continent invests just one third of EU levels in health per inhabitant.
Such a low capacity to raise funds has contributed to Latin America’s disproportionate death toll – the region has accounted for 30% of deaths from COVID19 worldwide, even though it has just 8% of the world’s population.
Oxfam, in its report “Who Pays the Bill?,” points out that the wealth of the region’s super-millionaires grew by 17% in the 16 weeks from mid-March: US$ 48.2 billion. That is equivalent to 38% of the total of the stimulus packages that all the governments have activated and to nine times the intervention of the International Monetary Fund (IMF).
The region minted on average one new billionaire every two weeks since March while millions of citizens have been left battling sickness, extreme economic hardships and struggling to put food on the table during lockdowns, with hospitals on the verge of collapse.
Latin American governments are massively under-taxing the wealthiest individuals and corporations, which is undermining their fight against the coronavirus and poverty and inequality. Oxfam estimates that Latin America will lose $113.4 billion in tax revenue this year, equivalent to 59 percent of spending on public health in the region. (basis of calculation (in Spanish) here)
We cannot fall into the mistakes of the past, when structural adjustment plans or responses to multiple crises resulted in disinvestment in social policies, low levels of social protection and even in democratic setbacks. The outbreaks of social discontent that showed their most bitter face in the second half of last year, just before the pandemic broke, should be a warning sign. Seeking a return to normality is not enough; normality was already the problem in a region plunged into a deep crisis of inequality.
Argentina could be just the beginning: Bolivia has just approved a wealth tax too, and Chile is Debating following suit.
Some media in Argentina are calling the new tax the “Oxfam Wealth Tax” because of the influence they claim we have had on the arguments for its approval. We were even name-checked in the bill sent to the Argentine Senate. We’d prefer to call it the “Covid Solidarity Tax’ – promoting a solidarity among Argentines that we hope will continue to inspire other countries around the world.