LAC Tax Policy Forum

Macroeconomic implications of the tax treatment of extractive

industries and relationships between levels of government

Mexico City – July 3-4, 2014

Managing fiscal revenues from commodities:

Why do they matter and what can be done?

Ángel Melguizo

Head, Americas Desk

OECD Development Centre

Managing fiscal revenues from commodities: why do they

matter and what can be done?

2

• Some key recent fiscal developments in Latin America

are commodity-related

• Commodities have also been very relevant for the macro

of the region

• (We suspect) Latin America is not saving (enough)

• Saving revenue windfalls: how? how much? what for?

Tax revenues convergence to OECD levels

3

Tax revenue over GDP

Source: OECD-ECLAC-CIAT (2014), Revenue Statistics in Latin America 1990-2012

Tax revenues over GDP in LAC have been converging to OECD

levels since 1990

0

5

10

15

20

25

30

35

40

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Difference (A-B) LAC (A) OECD(34) (B)

… related to the commodity-prices boom

4

Source: OECD-ECLAC-CIAT (2014), Revenue Statistics in Latin America 1990-2012

0 20 40 60 80 100

Bolivia (E.P.)

Peru

Chile

Ecuador

Argentina

Colombia

Venezuela (R.B.)

Brasil

México 7.7

12.2

3.3

3.1

14.7

2.8

4.4

9.8

2.2

%GDP

PEMEX

Fiscal revenues from non-renewable resources (billion USD and %GDP)

Managing fiscal revenues from commodities: why do they

matter and what can be done?

5

• Some key recent fiscal developments in Latin America

are commodity-related

• Commodities have also been very relevant for the macro

of the region

• (We suspect) Latin America is not saving (enough)

• Saving revenue windfalls: how? how much? what for?

Resource windfalls related to commodities have historically

increased macro volatility

6

LAC Promedios lamda = 400 # bonanzasDuración

(años)

Tamaño

promedio

(% PIB)

brecha

promedio

antes de la

bonanza

brecha

promedio

durante la

bonanza

brecha

promedio

despues de

la bonanza

Cambio en la

brecha

promedio

durante la

bonanza

Cambio en la

brecha

promedio

despues de

la bonanza

Cambio en la

brechaentre

antes y

despues de

la bonanza

Alimentos 41 4,4 5,9 -0,3 2,6 -0,7 3,4 -3,8 -0,4

Minerales 10 4,1 5,3 -0,8 1,1 -2,0 1,9 -3,4 -1,4

Combustibles 13 4,1 5,7 0,0 0,9 -1,6 0,9 -2,9 -1,9

Remesas 21 4,1 2,9 -1,7 -0,4 -1,3 1,6 -0,9 0,2

Flujos de capital de corto plazo* 14 2,9 6,8 0,7 4,4 -0,5 3,7 -4,9 -1,2

Inversión extranejra directa 24 3,3 5,1 1,3 4,0 -0,5 3,5 -3,2 0,6

Total recursos naturales 64 4,3 5,7 -0,3 2,0 -1,1 2,6 -3,5 -0,9

Total con flujos de capital 123 3,9 5,3 -0,1 2,3 -0,9 2,7 -3,2 -0,5

Suramérica Promedios

lamda = 400# bonanzas

Duración

(años)

Tamaño

promedio

(% PIB)

brecha

promedio

antes de la

bonanza

brecha

promedio

durante la

bonanza

brecha

promedio

despues de

la bonanza

Cambio en la

brecha

promedio

durante la

bonanza

Cambio en la

brecha

promedio

despues de

la bonanza

Cambio en la

brechaentre

antes y

despues de

la bonanza

Alimentos 21 4,0 5,0 -1,3 2,8 -0,8 4,3 -3,9 0,3

Minerales 9 4,0 5,6 -1,5 1,6 -1,8 3,1 -3,8 -0,3

Combustibles 10 4,2 6,0 -0,5 0,1 -1,0 0,6 -1,4 -0,8

Remesas 5 3,8 2,8 0,3 -0,1 -2,3 -0,3 -2,2 -2,5

Flujos de capital de corto plazo 12 2,4 7,3 0,7 1,9 -0,9 1,2 -2,8 -1,6

Inversión extranejra directa 7 4,3 3,2 3,5 5,0 -1,5 4,8 -3,2 1,6

Total recursos naturales 40 4,1 5,4 -1,1 1,9 -1,1 3,1 -3,3 -0,1

Total con flujos de capital 64 3,8 5,3 -0,2 2,1 -1,2 2,7 -3,1 -0,4

Source: OECD-CAF-ECLAC (2014), Latin American Economic Outlook 2015. In progress.

Resource windfalls in LAC (mid 60s – 2013)

Managing fiscal revenues from commodities: why do they

matter and what can be done?

7

• Some key recent fiscal developments in Latin America

are commodity-related

• Commodities have also been very relevant for the macro

of the region

• (We suspect) Latin America is not saving (enough)

• Saving revenue windfalls: how? how much? what for?

Commodity-related public revenues explain a lot of recent

improvements in Argentina …

8

Source: Daude, C., A. Melguizo and A. Neut (2010), “Fiscal policy in Latin America: Countercyclical and sustainable at last?”, OECD Development Centre Working Paper 291

Adjusted primary budget balance (%GDP)

Uruguay Argentina

-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

1992 1994 1996 1998 2000 2002 2004 2006 2008

Cyclical Observed Adjusted

-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

Cyclical Commodity related Observed Adjusted

… Chile, Peru…

9

Chile

-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

12.00

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Cyclical Commodity related Observed Adjusted

Peru

-3.00

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Cyclical Commodity related Observed Adjusted

Source: Daude, C., A. Melguizo and A. Neut (2010), “Fiscal policy in Latin America: Countercyclical and sustainable at last?”, OECD Development Centre Working Paper 291

Adjusted primary budget balance (%GDP)

… and Mexico

10

Source: Daude, C., A. Melguizo and A. Neut (2010), “Fiscal policy in Latin America: Countercyclical and sustainable at last?”, OECD Development Centre Working Paper 291

Adjusted primary budget balance (%GDP)

Mexico

-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

12.00

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Cyclical Commodity related Observed Adjusted

Managing fiscal revenues from commodities: why do they

matter and what can be done?

11

• Some key recent fiscal developments in Latin America

are commodity-related

• Commodities have also been very relevant for the macro

of the region

• (We suspect) Latin America is not saving (enough)

• Saving revenue windfalls: how? how much? what for?

Saving revenue windfalls: learning from peers from the

region and outside

12

• How?

- Fiscal framework (e.g. rule) with a stabilisation fund?

- Separated from the general budget?

• How much?

- Structural (long-term) prices and quantity

• What for?

- Fiscal sustainability and/or

- Stabilisation and/or

- Development (infrastructure, health, education) and/or

- Equity (inter-generational, territorial)

Gracias!

www.oecd.org/dev