IMF: the rich must pay more taxes to contain high inflation in Latin America

He International Monetary Fund (IMF) foresees that inflation in Latin America will reach “unacceptably” high levels, for which reason it has warned the region to take strong measures. Among the main ones is implementing stricter fiscal policies, raising, for example, taxes the richest, as well as supporting central bankss in its monetary policy without cutting the main social programs or spending on health, education and public infrastructure.

“A more contractive fiscal stance would help curb domestic demand, which would allow interest rates to be reduced earlier,” the institution specified in a regional note, in the framework of its meetings with the World Bank.

In this line, according to the institution, general inflation went from 10% in mid-2022 to 7% in March, in the main regional economies, due to the fall in the prices of raw materials. However, strong domestic demand, rapidly rising wages and widespread price pressures could cause it to continue to be maintained at high levels, so it will mainly affect the poorest.

Also, according to their forecasts, Latin America and the Caribbean will grow only 1.6% this 2023, after registering an unexpected rise of 4% last year.

More taxes for the rich

In order to avoid the disproportionate impact of inflation on citizens in the most disadvantaged areas, the IMF has proposed that the contribution of the richest be increased. “Implementing tax policies that force the rich to pay their fair share should be part of the solution,” suggests the international organization.

In addition, it was also argued that Latin America’s tax systems should become “more progressive” in view of high inflation and the prospect of slow growth in the region. “I think we clearly see that (…) in most countries in the region, taxes are not very progressive. The rich can avoid paying taxes or not submit to them thanks to exceptions,” said the deputy director of the Hemisphere Department Western Agency, Nigel Chalk.

In this way, a contractive fiscal policy could be implemented without reducing social spending to combat inequality, a persistent problem in most countries in the region, according to the agency.

Also, the IMF indicated that, since support for the recovery after the COVID-19 pandemic is no longer needed, countries should focus on “slowing down demand” and “this inevitably requires cooling the labor market.”