The International Monetary Fund (IMF) considers that Latin America You must “be careful” with increases in the minimum wage because if they are too strong they can lead to a greater underground economy, stressed the interim director of the Fund for the Western Hemisphere, Nigel Chalk.
In an interview with EFE on the occasion of the publication of the Fund’s regional report, Chalk recalled that the underground economy is a widespread problem in Latin America that affects all the countries of the region to a greater or lesser extent and proposed “combined” actions to deal with it.
He opted for measures such as those taken to encourage people to leave informality in the United States, where the lowest incomes have a “tax credit” for which money is returned to them and they do not pay more taxes.
He also valued that progressive fiscal reforms are being promoted in some countries. Chile and Colombia are in that process.
“We are seeing progress with tax reforms that focus on progressivity” with higher taxes for higher incomes and lower ones for those who earn less and that “will help” reduce informality, he said.
But he warned that care must be taken with the rules that are approved for the labor market, because “the tougher they are, the more likely it is that employers will move towards the underground economy” so as not to have to comply with them.
At this point, he considered that one must be “very careful” with the minimum wage in Latin Americabecause its increases can lead entrepreneurs, especially small businesses with little margin to obtain profits, to move towards the underground economy, and have their workers outside the system.
On the other hand, the expert IMF He warned of the negative effects that a high rise in social contributions such as the one being promoted by some countries in the region could have, which could go “in the opposite direction” to what was desired and lead many once again to opt for the shadow economy.
He gives the example of Chile – country in which the report is presented this Wednesday -, which in its reform of the pension system proposes to increase contributions to Social Security. “I’m not saying it’s wrong to do so, but care must be taken so that it doesn’t lead to informality” in the economy.
For this reason, he insists on the need to study “the entire tax burden” at the same time, especially in the case of the lowest incomes, to prevent them from preferring to be outside the system.
In any case, Nigel Chak appreciated that tax reforms are under way in Latin America focused on achieving progressivity and making sure all levels pay what they earn, especially high earners, while reducing the burden on lower earners. EFE
