President Chávez has accomplished one big thing over the last few years: he's significantly raised non-oil tax revenues. Venezuela, like most Latin American countries, needs public spending on public goods. For that, you need revenue ... preferably revenue that isn't directly tied to commodity prices. For all the other mishandling of the Bolivarian Revolution, one necessary thing that the government has done right was bring on the fisc.
Of course, I had some doubts about this at the airport, where the first thing you see at customs is a big poster exhorting you not to cheat on your taxes. That kind of thing is rarely a good sign.
But numbers are numbers. The yellow vertical line shows the date of Chávez's inauguration; the vertical axis is the percentage of GDP collected by these other taxes. The dotted blue line shows a continuation of previous policy. Underlying numbers come from Seniat, the Venezuelan tax authority.
So how did he do it? Ah, that's a good story, below the fold.
In a word, enforcement. Chávez hasn't raised taxes. The VAT has gone down by a point, to 14%. Income taxes remain graduated, from 6% up to 34%. What the government did do was go after non-payers, with a vengeance.
(Photo courtesy of oilwars.blogspot.com.)
For income taxes, Seniat aggressively audited businesses, and then even more aggressively closed them down (for a set period of time) if they found underreporting. This, undersurprisingly, proved to be even better than fines. Combine that with generally rising incomes, and you've got a recipe for a fiscal resurgence.
Thus, the good. What's the bad? Well, 12 percent is quite low, down there with places like Mexico, which has a chronically-underfunded public sector. Argentina collected 17% in 2007, excluding social security and the export levies. Chile collected 18% of GDP in non-copper tax revenues in 2006, excluding the social security system. Brazil received 20% (again, excluding social security) in 2003. Venezuela remains highly dependent on oil taxes, royalties, and PDVSA profits ... more so considering as the current government managed to run a fiscal deficit last year.
The ugly will be a topic for the next post. Anonymous, look out for it.
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