The mother of all reforms

The government has initiated a process of consultations with the different social, economic and political sectors of the country in order to collect ideas and suggestions that will be subsequently reflected in a bill aimed at generating a substantive tax reform in the country.
Tax reform, to be truly transcendent, should meet two requirements. First, collect more taxes. Secondly, to achieve this without making the distribution of income in the country more regressive.
Collecting more taxes is necessary because the State has – or must soon have – more responsibilities in the social, economic and even environmental spheres. When the State is conceived only with a subsidiary role, it may be enough for it to be a weak and small State. But when Chile is to be a social and democratic state based on the rule of law, the responsibilities of the state and the government are greater, and that must necessarily translate into the country’s tax structure. Having a better health system, or having more and better education, or having a fairer pension system are issues that involve the State and the government, and that require greater tax collection. The vast majority of the reforms that the country demands need economic resources to be able to be carried out.  There are very few substantive reforms that can be made only with changes of a regulatory nature. Therefore, the need to raise more tax resources is not an adjective issue in the field of the transformations that have been promised to the country. It is not one more reform among many others, in which the government may do well, or it may do badly. It is the mother of all reforms, because without it, all the others will become impossible, or they will be able to be carried out only at a very modest level.
Making a tax reform so that the resources available to the State remain more or less the same, and therefore, so that the government can do more or less the same as it has been doing so far, is a gatopardesca reform that would generate a very high sense of frustration and irritation within the population. With this, some minor changes could be made in the way resources are distributed, and certain budget items could be increased, decreasing others, but there would not be resources in that way to make all the transformations that the country demands.
The need for higher revenues not to generate a worse distribution of income – in a country where the distribution is already quite bad – is related to the origin of the eventual new tax resources. They can come from the most dispossessed sectors of the population – increasing, for example, consumption taxes, VAT rate – or they can come from the highest income sectors in the country, increasing, for example, higher income tax rates, or imposing royalty on extractive mining activities, or actually combating tax evasion and avoidance.
Will it be possible to reach a tax reform project that generates more resources without undermining the distribution of income? Can this be achieved through dialogue and negotiation? Will it be possible to approve in parliament a project with these characteristics? Will the tax reform open the way to the other reforms that the country expects? These are the big questions that are raised in the present country. The answers that become possible will depend not only on the fate of this government but also on the great destinies of the country.      

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Original source in Spanish