November 01, 2014

How the improvement of public finances is achieved, must be made a part of that “moral challenge”.

Sir, Martin Wolf correctly holds that “Improving public finances is a moral challenge”, since “Morality requires a balance between meeting legitimate demands upon the state and the cost of taxation. October 31.

Absolutely, but let us never forget that, in order to make the state more accountable to its citizens, avoiding forging a separate power, the how that fiscal balance is met, is also an issue of morality, not only a question of numbers balancing.

A government which receives its revenues mostly from citizens, by means of personal income and property tax will probably feel, one way or another, to be held much more accountable for its action, than a government which receives its income mostly from corporate taxes, sales taxes, and, in some extreme cases, like that of my poor Venezuela, from revenues like oil that governments believes to be rightfully theirs.

As a former Executive Director of the World Bank, I often toy with the idea of having WB evaluating how much governments around the world are revenue-wise accountable to its citizens, but, since the shareholders of the WB are governments and not citizens, perhaps that would just be too much to ask of it. Nonetheless, someone, on behalf us citizens, should be doing just that.

That way perhaps concepts like allowing governments to pay off their debts through inflation (financial repression) would be more understood as something immoral than as something financially savvy.

PS. And of course, while on this issue of morality, and though very few are concerned with it, let me remind you that for regulators to regulate banks without distorting the access to bank credit, favoring some and discriminating against others, should be a moral challenge too.