New inheritance tax proposal met with protests; Tax to affect roughly 2 percent of population; Correa temporarily withdraws proposal; Protests call for Correa’s resignation; Correa remains highly popular thanks to economic management and public spending
Over the past month, Ecuador has witnessed a series of protests lead by local opposition groups, many descending into violence, against newly proposed inheritance and capital gains taxes. Protests began while the country’s President, Rafael Correa, the current pro tempore President of the Community of Latin American and Caribbean States (Comunidad de Estados Latinoamericanos y Caribeños, CELAC – a regional bloc of 33 countries), was in Brussels attending a CELAC-EU summit.
Correa, an economist with a PhD from the University of Illinois, submitted a bill to the National Assembly which will introduce a two-and-a-half percent tax on inheritances between USD $35,000 and $70,000 and a levy on windfall capital gains from land sales. Currently, inheritance tax starts at five percent on figures between $69,000 and $137,000 and 35 percent on figures in excess of $827,000.
The bill, Correa argues, is aimed at “the wealthiest, it is redistributive”. He hopes the levy will be key in “breaking centuries long inertia where a hundred –maybe– families have been dominating [Ecuador], precisely through the inheritance of economic power”.
His administration estimates in 2014 only one-in-3,000 Ecuadorians received an inheritance within the proposed brackets and, if passed, as is almost certain thanks to Correa’s large legislative majority, will affect about two percent of the population.
In attempts to ease tensions, Correa has temporarily withdrawn the bill from the legislature. Addressing the nation, Correa said time was needed for a public debate about the proposals and to avoid problems for the Pope’s visit in July. Noticeably frustrated, he had strong words on the events: “We want debate, not shouting… We want arguments, not manipulations. All of this should have been done in the [National] Assembly, but it has been impossible with all the misinformation and violence generated”. This, however, failed to stop a ninth straight day of protests.
Opponents of the bill include the Mayor of Quito, Ecuador’s capital, who argues it will hurt the middle class, affecting “thousands of families in their quest to succeed”. Others believe the move hampers economic success, like tax-law specialist, Rafael Oyrate, who believes “no one will want to start a new business”.
A prevalent feeling among opposition groups seems to be that Ecuador’s rich are continually being made to fund Correa’s infrastructure and public projects. The protests soon moved from opposition to the taxes to calls for Correa’s resignation and, in some instances, forceful removal.
Michel Levi, from Quito’s Universidad Andina, believes opposition groups are seeking to galvanise support in preparation for 2017 presidential elections. Correa appears to have arrived at a similar conclusion and publicly challenged his opponents; “Instead of using violence, force, use the constitution.” He went on to say there are those “who want to achieve through force, what they could not achieve at the ballot box”.
Historically, opposition leaders have had limited success in challenging Correa through the popular vote. Despite a recent drop in approvals he remains highly popular (between 60 and 85 percent approval – various sources), especially among his base of the working and lower-middle classes. Such support has seen him win three consecutive presidential elections since 2006; his most recent with a 58 percent vote share in 2013.
Prior to Correa, Ecuador endured decades as the epitome of an impoverished and unstable Latin America. From the mid-1990’s Ecuador had eight presidents in 13 years and a crippling banking crisis which led to soaring unemployment and one in ten Ecuadorians emigrating.
With memories of the turmoil fresh in the minds of many Ecuadorians, the continued endorsement from the electorate seems to be down to Correa’s economic administration and public investment projects.
Correa has presided over an economy that has grown at four percent annually since 2007, during a period of global economic recession. Economic growth has resulted in poverty levels falling by a third with 1.1 million people escaping poverty. Additionally, unemployment dropped to record lows of five percent and minimum wage was increased to one of Latin America’s highest.
In tandem, Correa has implemented an economic approach of tight fiscal controls, typified by popular attacks on beneficiaries of previously relaxed regulations. His policies have included aggressively targeting tax evasion, from which Ecuador now raises three times more revenue. Other popular moves have included taxing of capital flight and the repatriation of assets held by the Central bank.
Resulting from increased national revenue, Correa tripled public investment and funded a series of social initiatives known as Revolución Ciudadana (Citizens’ Revolution). These projects have included guaranteeing universal health care and offering free education up to and sometimes including university level; Ecuador is now the second highest investor globally in higher education.
Publicly these actions have been hugely popular and rewarded Correa with three consecutive presidential terms. As US magazine, The Nation, puts it, his popularity stems from the fact “he played hardball with foreign creditors and stood up to Big Oil, using increased earnings to transform education and health”.
With Correa’s popularity still holding firm, opposition groups seem increasingly frustrated at being unable to seriously challenge these policies through the ballot. The reactionary nature of the demonstrations suggest they were not just opposing a tax on Ecuador’s wealthiest two percent but were, in fact, symbolic of growing resentment from certain societal sectors against Correa’s redistributive policies.
However, as long as Correa continues his effective economic administration, the popular stance against ‘big business interests and reinvest in public services he looks set to retain his majority and mandate to push similar policies. At present, there is little Ecuadorian opposition groups seem able to do but protest and watch.