Let’s take a look at the worsening conditions in many nations, including developed economies, due to factors resulting from the recent pandemic or as a fallout of wars. This has impacted even countries far from conflict zones by virtue of having on the ground interests there. This has compelled countries to go in for deficit financing of state budgets after the sharp rise in their domestic and external obligations.
The limited resources in certain nations already grappling with such conditions, coupled with sovereign debt surpassing levels of more than 200 per cent of GDP, usually heralds an imminent economic collapse. Consequently, these countries believe an optimal solution lies in imposing more taxes on the populace, who already suffer from declining living standards.
The latest tax-related crisis emerged in Argentina, a country grappling with severe economic malaise for a long time. The government of newly elected free marketer, President Javier Milei, imposed taxes on organisers of protests to cover expenses associated with deploying security forces.
The demonstrations were arranged against the austerity measures introduced by the new president. The total costs incurred, estimated at $73,000, for deploying security forces during these protests are relatively minimal.
Passing the buck
According to a government spokesperson, the bill for these expenses will be sent to the movements responsible for organising the demonstrations. Last year, inflation soared to an alarming rate of 160 per cent, leaving nearly 40 per cent of the population struggling below the poverty line.
Later, Argentina announced that it would not join the BRICS group, which was expected on January 1 this year after current members agreed during a recent summit held recently in South Africa to include six more countries, including Argentina, in addition to the UAE, Saudi Arabia, Egypt, Iran and Ethiopia.
Such a decision may deepen the economic crisis in Argentina, a country that depends on external loans, as it could have benefited from the BRICS Bank and the financing provided by some in the group - such as China, Russia, India, Saudi Arabia and the UAE.
This coincides with the adoption of a new economic program whose main pillar is privatisation, meaning if the funds generated from privatisation are not properly managed and invested, Argentina will lose substantial revenues. In such a scenario, taxes imposed on demonstrations will not offset this huge loss…
Argentina's two-decade problem has resulted from its economy suffering a structural imbalance that encompasses low productivity and low growth rates, coupled with a continuous deterioration in its national currency, the peso. The inflated public sector suffers from disguised unemployment, in addition to a very large parallel economy that deprives the state treasury of returns.
Seeking short-term solutions
Here lies the real problem, which is also the case with many countries suffering from economic crises. They only address surface issues without tackling the root problem related to development and managing it. Some, like Argentina, were rich countries that previously enjoyed high living standards due to resources and good management of economic policies.
The style of economic management determines many indications. There are wealthy nations yet facing deteriorating economic conditions. Conversely, some countries, despite lacking natural resources, boast some of the world's highest growth rates and living standards, notably Singapore.
This means good economic management, resource utilisation, adoption of proper economic policies, combating the shadow economy, corruption, and nepotism, as well as addressing structural imbalances in the economy, are all practical measures. And the right way to get out of crises and put the economy back on the path to growth.
Embracing flexible tax policies is pivotal. Random taxation - which might even extend to levying taxes on fresh air! - can exacerbate economic and living conditions. These collectively formulate the recipe for growth and are drawn from successful developmental experiences.