Grazielle Custódio David

@Latinoamérica21

This is the first time in 25 years that inequality and poverty have increased simultaneously, accelerating the devastating impact of the COVID-19 pandemic. The paradox is that, as the depth of the crisis increased, so did $42 billion in new wealth. A small group of privileged people, barely 1% of the world’s richest, a new Oxfam report reveals, has monopolized two-thirds of this new wealth created since 2020, leaving only a third for all the remaining 99% of the world’s humanity. It is, therefore, about the intensity of wealth concentration much higher than that accumulated during the last decade, when that 1% already monopolized half of the created wealth.

Meanwhile, at least 1.700 million workers live in countries where they cannot cope with the constant escalation of prices in their daily life, which affects them in indispensable consumption. This cost of living crisis is a crisis of inequality fueled by some of the big businesses and the super rich who are taking advantage of the uncertainty, the pandemic and the war in Ukraine; and they take a cut, inflate prices and margins, at the expense of the vast majority.

Extreme wealth and poverty are two sides of the same coin. But inequalities are not a matter of luck or chance, but the result of political decisions. This sheds light: it is possible to reduce inequalities and guarantee rights if we work to implement fairer economic policies. This is Oxfam’s approach in its reports, which will be presented at the World Economic Forum in Davos in January 2023: it’s time for the super-rich to pay more, because if they don’t, we do.

This payment is not always valued in monetary terms. Many times the most vulnerable pay with their own lives, which was painfully and countless times demonstrated during the COVID-19 pandemic when alarming numbers died, which could have been avoided if countries had better funded and efficient public health systems.

An unacceptable global reality is happening in both Latin America and the Caribbean. According to Oxfam, the wealth of billionaires in our region has grown by 21% since 2020, which is five times faster growth than the total regional gross domestic product (GDP) over the same period. At the same time, more than 200 million people are in a situation of extreme poverty, food insecurity affects four out of ten people, and real wages have lost a tenth of their value.

Since 2020, the region has also seen 30 new billionaires, whose combined wealth has grown at an unprecedented rate of $68 million per day. The main sectors in which these millionaires work are food, healthcare, finance and mining.

It is important to be clear that this wealth will not leak out. It is not, as many claim, prosperity that will engulf the entire society in one moment. And we strongly confirm this because there is no historical precedent for this. That never happened. The system is designed to protect the interests of the minority at the expense of the needs of the majority.

The result is not only an increase in inequality at the extremes, but also an alarming polarization of incomes, with the shrinking of the middle class and the formation of two very distant income pillars, which also leads to the politics of polarization and represents a latent risk to our already fragile democracies.

Among the causes is the capture of fiscal policy, with the collapse of taxation on the super-rich and large corporations, while taxes on the poorest and middle class have risen. In fact, the marginal rate for the top earners in the region has been cut in half, falling from 50% to 26% since 1980. On the other hand, between 2007 and 2019, tax collection in Latin America and the Caribbean grew by barely 7%, and that was at the cost of the fact that the fiscal burden falls mainly on workers through an 11% increase in taxes on consumption, personal income and social security contributions, while taxation of corporate profits and property fell by 5%. Thus, tax systems in Latin America deepen inequalities due to the fact that those who have more pay proportionally less.

In addition, no country in Latin America and the Caribbean taxes capital gains above earned income, and 17 of the region’s 91 billionaires live in countries that do not apply inheritance, gift or inheritance taxes. So if nothing changes, $158.6 billion will be passed on to the next generation completely tax-free, restarting the cycle of the ultra-rich and privileged.

There are alternatives. Oxfam proposes tax recommendations for a fairer, more inclusive and sustainable Latin America and the Caribbean, ensuring that progressively collected revenue is allocated to reducing inequality and guaranteeing rights, particularly in public health, welfare systems and just transitions. Among other measures, if governments adopt a tax of between 2% and 5% on the net wealth of billionaires, public investment in healthcare across the region could increase by 36%.

Governments can also push for a major Latin American tax deal through measures to tackle tax avoidance and havens, as well as review ineffective tax breaks. This should serve as an incentive to build more inclusive, sustainable and fair tax systems, which can lead to a wave of progressive tax reforms in countries, improve tax cooperation in the region and form a bloc that will guarantee better global tax agreements for the same region.

Tax systems in the region must stop being regressive and benefiting a small group of the ultra-rich, while inequalities widen. The rules of the game need to be changed, and Latin America and the Caribbean have an immediate and unique opportunity to do so. The invitation of Colombian Finance Minister José Ocampo to the Regional Fiscal Summit in Davos is a very significant first step for this, opening the door to achieving fairer societies for all. (OR)

Economic Justice Coordinator for Oxfam in Latin America and the Caribbean. Doctoral student of economic development at Unicamp. Member of the academic network of the Initiative on Principles of Human Rights in Fiscal Policy.