Fiscal justice is a substitute for austerity and one of the indispensable remedies against inequalities in Tunisia, Oxfam, the confederation of anti-poverty NGOs says in an analysis that takes stock of the multiple socio-economic challenges facing the country, which are likely to worsen in the aftermath of the coronavirus health crisis.
In the absence of strong and immediate economic measures, inequalities are likely to increase further.
It is therefore necessary to advocate for fiscal policies that ensure the universality of quality essential services for all Tunisians, such as health, education and social protection services. Inequalities in Tunisia are diverse and multidimensional.
The purpose of public services in essential vital sectors is to cushion the shocks that could hit the most vulnerable people in a society, and to contribute to greater social justice.
Under the impetus of the austerity policies promoted in Tunisia by the International Monetary Fund, the share of education and health expenditure in the State budget fell sharply between 2011 and 2019, from 26.6% to 17.7% for education and from 6.6% to 5% for health respectively.
Some forms of inequality, such as gender inequalities, are more difficult to see. While the labor market remains difficult to access for graduates and young people, it is even more difficult for women.
Similarly, in 2019, women are twice as affected by unemployment as men (21.7% compared to 12.1%).
However, women are an essential pillar of the Tunisian economy, and in addition to their professional/economic activity, they perform work that often remains invisible and systematically unpaid (domestic and care tasks).
The necessary tax reform
In order to encourage a better redistribution of wealth and opportunities, Oxfam Tunisia considers it necessary to reform the Tunisian tax system.
Indeed, the latter weighs disproportionately on the middle and poor classes to the benefit of the most well-off.
This system is shaped by the neo-liberal vision advocated by the international financial institutions that have encouraged the liberalization of the Tunisian economy through vast structural adjustment plans since the 1980s.
This encouraged the development of the private sector to serve the better-off, to the detriment of quality essential public services accessible to all.
These liberalization policies consisted of the imposition of indirect taxes and the reduction of the cost of capital.
They are the clear and explicit expression of an unequal system through a tax burden that weighs disproportionately on all Tunisians regardless of their income.
By way of example, in 2018, indirect taxes (VAT, consumption and customs duties, and other taxes) accounted for nearly two-thirds of collected contributions.
With regard to direct taxes, personal income tax (PIT) is the second largest source of tax revenue after VAT.
Several tax reforms introduced since the 1990s and confirmed by the 2017 Finance Act have eroded the progressiveness of the IRPP in favor of the highest income brackets.
Unequal treatment is also to be deplored. Not all citizens have the same status and are not all equal with regard to taxation.
While employees are fully subject to tax, other categories of self-employed workers who are covered by the flat-rate system contribute little or nothing.
The latter bring in an average of 0.2% of tax revenues. Income from capital is also taxed less than income from labor and is taxed at a proportional rate of 10%.
Finally, it is unfortunate that the tax burden between households and companies is not better distributed.
Tunisian companies benefit from numerous tax incentives and currently contribute only 11% to the country’s tax burden.
Indeed, during the ten years preceding the revolution (2002-2011), the average tax incentives represented 70% of tax revenues in terms of corporate tax.
In addition, the IMF estimates that the cost of tax expenditure in 2016 was around 3% of GDP, which is higher than the public health budget (1.8% of GDP) and the exceptional measures taken to deal with the coronavirus, which constitute 1.8% of GDP.
Cancellation of debt payments 2020-2021
Yet Oxfam says it is convinced that it is possible to make the Tunisian tax system a real instrument of wealth redistribution, especially in the current context of the pandemic.
It recommends emergency measures to contain the fall in public revenues through new solidarity taxes and by reducing the debt burden.
The income generated could be allocated to the most vulnerable households.
Other proposals include the urgent introduction of a progressive wealth tax to generate revenue to finance the response to the current crisis, the formulation of a request to Tunisia’s foreign creditors, notably the IFIs, to cancel debt payments for the years 2020 and 2021, and the increase of cash transfers to cover at least the minimum wage and extend them to the most vulnerable workers.
In parallel with the emergency measures, there is a need to turn the page on austerity policies and to develop fairer alternative policy proposals such as increasing public spending in the health sector to reach 5% of GDP, and developing a social and universal protection system.
Finally, it is recommended to better distribute the tax effort between different incomes and to tax wealth and capital in its different forms more heavily, to reduce the use of indirect taxation (especially VAT), to improve the collection and progressivity of income tax, to strengthen the fight against tax evasion by allocating more resources to the administrations concerned and to put an end to non-productive tax incentives.