Informe Nº: 12/05/2014
Although there has been a significant improvement in income distribution since the crisis of 2002 the dissatisfaction among the population is growing. While the middle class suffers an unprecedented growth in the fiscal pressure, no correspondence is perceived in improvements of the government services or the living conditions of the most disadvantaged in spite of a strong increase in public expenditure. This inconsistency will not be solved by creating further welfare programs in order to benefit the poor or reducing the income tax to gratify the middle class. What it is urgently required is a profound change in the quality of state management.
The Gini coefficient is the most widely used indicator to measure the personal income distribution. It reaches 0 in case of a perfectly equal distribution and 1 in case of extreme inequality. For example, in the most socially advanced countries of Europe the Gini varies from 0.20 to 0.30 whereas in Latin America, marked by a more regressive income distribution, values between 0.40 and 0.55 prevail.
In Argentina, INDEC’s estimate of the Gini coefficient for the last quarter of 2013 is 0.413. This is a significant improvement from the 2002 crisis, since in late 2003 the value of the Gini was 0.525, although it shows deterioration when compared to 2012 when it had dropped to 0,411. However, despite the improvement, it is striking that high discomfort above the social situation prevails among the population.
To assess the sources of dissatisfaction it may be relevant to analyze the evolution of income distribution and public spending. According to INDEC and the Ministry of Economy, between 2003 and 2013 it is noted that:
· The participation in income distribution of the poorest 30% of the population increased from 11% to 16%.
· The participation in income distribution of the 10% of the population with the highest levels of income dropped from 30% to 20%.
· The total national public spending increased from 24% to 39% of GDP.
These figures show that participation in income distribution of the poorest grew, whereas that of the highest income level fell. However the biggest change is, by far, the rapid growth of government expenditure relative to GDP. This huge absorption of resources by the public sector without any visible improvement in terms of quality of the state’s intervention may be one of the most important determinants of discontent among the population.
The 10% of the population with the highest income is what is regarded as “middle class”. This group includes households with per capita income of around AR$ 7,000 per month. That is, households with one person with income of this sum or a couple with income of about AR$ 14,000 per month or a typical family which gathers a total of about AR$ 28,000 a month. This group suffers the growth in the tax burden which is not matched by better government’s intervention. The prevailing unrest is generated by the rise of income tax and other taxes, the rise of insecurity, the lack of infrastructure and the burden of an overwhelming bureaucracy.
Neither for the lower income population the growth of the State has provided good results. Their situation improved compared to the critical point reached in the 2002 crisis. However progress is quite modest when compared to the exponential increase in the size of the state. Very little of the huge mass of resources of the public sector goes to the rise in the life quality of the poor. Even more serious is that the poor are the main victim of the poor quality of government services including insecurity, drug trafficking, violence and the serious deterioration of state education.
Such frustrating experiences are the result of a rapid growth of the State without regard to strategic prioritization and professional management. Faced with failures, there are those who propose demagogic and inconclusive solutions such as reducing the income tax for the middle class or creating more social welfare programs for the poor. The real solution lies in modernizing the state and replacing improvisation with professionalism.
