Article published by José Miguel González Hernández in the July issue of La Gaveta Económica.
Under normal conditions, changes in the institutional environment must be based on the development of endogenous potential, offering facilities for the emergence of economic units of flexible specialization with a minimally efficient nature aimed at maximizing profitability. This would avoid the polarization of economic activity in the face of processes of growing competition, with the aim of cleaning up depressed areas and thus avoiding the worsening of their situation. On the basis of this model, a fiscal system must be formed that aims to provide, in a sufficient and supportive manner, a battery of public goods and services that originate processes of social insertion.
However, right now the situation is extraordinary. Therefore, any tax measure must be fueled by redistributive purposes, causing the demand for the same sacrifice at each level of government, offering vertical equity. The same treatment should also be established for individuals with the same income, creating horizontal equity. For the processes to be efficient, as well as neutral, each tax figure must fall on the person who benefits from the service. Even so, the tax system should have rapid adaptability to different market conditions, thus showing high elasticity. In this sense, the regional aspect seen from this prism is interesting and essential because one can opt for a scheme of action and collaboration based on the decentralization of power.
From there, in order to enhance the processes of financial sufficiency within the different levels of public administration, it will be necessary to take into consideration the dimension of the jurisdictions, the analysis of the origin and destination of tax funds together with the correct identification of taxable events and their formation in tax bases. It is clear that any fiscal process must be directed towards achieving financial autonomy. This must be established on the basis of freedom of decision for a government in the allocation of its resources or in the structuring of its expenses and on the existence of a certain power of decision over the total volume of available income. It is also necessary to know how the tax burden is distributed among taxpayers. At the same time, the power to distance in time the moment of obtaining the income from the moment in which the expenditure is ordered, that is, non-simultaneous expenditure, is another important section in order to inform the generation that must face the payment. Ultimately, financial autonomy depends on the degree of tax power that a government has to decide the total volume of revenue and to distribute the tax burden.
The main objective of a fiscal system based on its level decentralization is to obtain greater powers in order to comply with its responsibilities and rights, but it is no less true that there is a continued confusion between two important dimensions of said fiscal system: the financial one as the capacity to obtain income and the solidarity based on the intensity of the territorial redistribution policy in leveling transfers to offer minimum services.
The concept of fiscal pressure is built on the basis of financial capacity and the distribution of the proceeds collected. This is directly correlated with the evolution of the Gross Domestic Product of the region. In this way, economic growth must be taken advantage of to form appropriate fiscal structures.
In our recent history, in the Canary Islands there have not only been periods where the tax pressure has increased, but the competitive differential gap regarding the tax burden with the rest of the State has been decreasing. This statement, in principle, should not have a negative meaning, since a greater volume of fiscal resources in relation to the income generated can offer us a panorama of growth and development, not only of private initiative, but with respect to the unavoidable return of public resources in the form of goods and services offered to the population. But if we analyze the members of this evolution we can see how indirect taxation, which affects spending, takes center stage, compared to the trend of direct tax figures with their impact on income. That is to say, progressivity seems not to be the strong idea, but rather the relative ease of obtaining tax resources.
Regarding the specific measure of increasing different taxes in a context of falling GDP, in order to obtain sufficient economic resources a series of considerations would have to be raised, such as evaluating the impact that the new tax policy will have on consumption and production, as well as the price elasticity of the goods subject to taxation, in order to know by what percentage the tax should be increased so that consumption does not decrease in a greater proportion, since otherwise the collection would decrease, being precisely the opposite objective of the intended. In addition, it is necessary to know the plans of the economic and social agents to coordinate public and private action. In short, the evolution of taxation must promote fiscal co-responsibility, given that it is currently not fully identified because it is possible to know who supplies the public good or service, but it is not known exactly who finances it.
Given this situation and temptation to try to complete the budgets via income while maintaining the level of spending, we must remember that, if the fiscal pressure of our region increases based on spending without first balancing the income generated, it could provoke processes of social polarization. Therefore, the criterion of equity must establish either the equalization of spending capacity per inhabitant, or the fair distribution of resources required to guarantee a certain level of coverage of public services for all users. You have to decide, in every political decision-making process, to know what you want to do with the public funds collected, either provide only development or only equalize income or compensate them. Now, it's just time to choose.
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José Miguel González Hernández
Consulting Director
Corporation 5
