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Opinions of Friday, 12 June 2020

Columnist: Juan David Huertas Ramos

An approach to taxes and public expenditure

To allude to taxes is talking about State finance or public finance. That implies to mentioned taxes’ social importance. Indeed, every one of us is concerning taxes.

Benjamin Franklin stated that death and taxes are facts in human life. He was not wrong because taxes work in the social context as a link between population and States. Consequently, it is not possible to understand social life without considering taxes or State roles.

On the one hand, the Oxford English Concise Dictionary defines tax such as “a compulsory contribution to state revenue, levied by the government on personal income and business profits or added to the cost of some goods, services, and transactions”.

According to the last point, if one player works in the informal economic sector, that person (human or fictitious) is not contributing to public finance. In other words, informality does not contribute financially to development.

On the other hand, Adam Smith claimed in his most prominent work “An inquiry into the nature and causes of the wealth of nations” that taxes should support the majority of government expenditure (public-sector expenditure). Additionally, the Scottish author explained that taxes affect income, independently if it comes from wage, profit, donation, or any remuneration which people receive.

On the opposite side of Smith, I consider the State has to be an exceptional manager of public-sector goods. The State has the responsibility to provide the population with the needed means to dignify their human condition.

If we accept taxes have to support the majority of public-sector expenditure, we are recognizing implicitly that the State has not managed public entities properly.

Personally, it is not acceptable that public-sector institutions get poor financial results because the State has a preferential stage in the economic system playing like a referee.

Regarding, some public-sector entities play in the economy like monopolies and/or monopsonies, it is possible to ask the following question:

Is it not enough to get profitability?

If public administration chooses good managers with higher technical expertise instead of politics to lead its entities, the State should be profitable.

Politicians have to be in the political arena, but managers have to be at the top of public-sector institutions that contribute financially to well-being. Development is not a political or demagogical process, it is an economic issue.

Development is a stage where the population can elevate their nature throughout material conditions of wellness. Everyone has to contribute to development.

It is not fair that some natural and juridical persons pretend to work in the informal economy and receive State support when they did not contribute to public finance.

It is necessary to pay taxes for receiving the balance in social services but the State must manage every entity smartly to maximize profitability and translate that return socially.

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