Myth #7: Austerity is justifiable because there are no other alternatives.
The continuing economic crisis seems also to have prompted a crisis in innovative policy ideas and alternative financing arrangements. Governments promoting austerity policies consistently fall back on the argument that the economic crisis???no matter the causes???has tied their pocket books, with no other solutions except backsliding in public expenditures in health, education and social protections.
Reality Check
For many countries, perhaps the biggest fiscal fallacy is that there is any fiscal crisis at all. Austerity is neither necessary nor is it inevitable. Resources abound in many countries, if governments would only take steps to properly generate and channel them into protecting and fulfilling their human rights obligations, as is their duty.
Alternatives to austerity are numerous. Evidence from UNICEF suggests that opportunities to identify and expand countries??? resource bases are abundant, and that more expansive fiscal policies are on the whole completely feasible in financial terms. Each country is unique, with potential risks and trade-offs at every step, but generally speaking governments have five sets of tools to mobilize and use resources effectively???together referred to as the maximum available resources (MAR) star: re-allocation of government expenditure, increasing government revenue (especially through tax policy), improving monetary policy and financial regulation, deficit financing or restructuring existing debt, and finally, for some countries, increasing development assistance.
Let???s start with tax policy. Taxation is a key vehicle for redressing social inequalities, and goes to the heart of the accountability bond between state and citizen. Progressive, non-discriminatory tax policies carried out by capable and accountable tax authorities can generate substantial sums to offset public budget deficits and compensate for the social costs of the crisis, especially in countries with very low tax bases, such as Ireland and Guatemala. New sources of financing are also quite feasible, such as financial transaction taxes (FTT) or the Robin Hood Tax, which have been proposed as a way of promoting greater financial sector accountability, mitigating some of the worst forms of speculation, and recuperating some of the public costs incurred as a result of the global financial and economic crises. According to a study by Bill Gates for the G-20, at its lowest rate the FTT would yield about $48 billion across the G20, with higher rates offering up to $250 billion dollars per year.
Illegal tax evasion by companies and rich households meanwhile causes an endemic drain on the availability of revenues for the progressive realization of rights, especially in countries with already high levels of poverty, inequality and already low tax bases. Governments worldwide lose $3.1 trillion annually to tax evasion, according to estimates. This equates to about half of the world???s total expenditure on healthcare. Studies put the amount lost to illegal capital flight in developing countries at between 6-9 per cent of GDP. By comparison, total average tax revenues in these countries are only 13 per cent of GDP. Turning to Europe, had the UK government taken decisive steps to end illegal tax evasion between 1997 and 2010, there would simply be no debt in Britain. In 2012, the Spanish Union of Tax Authorities estimated that the government could with the right policies capture some 38.5 of their 88 billion euro losses to tax evasion. Instead, the government decided to cut public spending by 18 billion euros through historic cutbacks to public expenditure in education, health, research, employment programs and infrastructure. While high-income countries are among the biggest losers in absolute terms, low- and middle-income countries are particularly vulnerable to losses to tax evasion. As summed up unambiguously by the Special Rapporteur on Extreme Poverty, ???A human rights approach ??? requires States to take steps to eliminate the prevalence of tax evasion, a problem that reduces the resources available for measures to realize human rights.???
Meanwhile, monetary policy alternatives which balance inflation stabilization with full employment-oriented targets and financial stabilization functions???and help free up excessive foreign exchange reserves to invest in economic and social rights???could mobilize countless resources to offset austerity. Facilitating rights-fulfilling financing and directed credit toward strategic, decent-job generating sectors could also make economic growth more inclusive and employment-intensive.
For countries with high levels of sovereign debt (especially debt accrued illegitimately), meanwhile, debt restructuring presents real possibilities to prioritize obligations to the wellbeing of their people over commitments to their creditors. The human rights impacts of debt servicing and other financial obligations have been of consistent concern to human rights treaty bodies. Incidentally, the UN Independent Expert on Foreign Debt and Human Rights is developing a set of Guiding Principles on Foreign Debt and Human Rights to give clear direction to lenders and borrowers on how to balance a debtor State???s contractual obligations arising from its external indebtedness with its international legal obligations to respect, protect and fulfill all human rights. Debt relief and restructuring efforts in the past have been widely successful. The heavily indebted poor countries (HIPC) debt relief efforts helped to cut debt repayments from 20 per cent of government revenue in 1998 to less than 5 per cent in 2010, according to studies. This has allowed governments to re-invest in essential social and economic programs. Primary school enrolment jumped to 82 per cent from less than 50 per cent in the late 1990s in Tanzania, for example, after school fees were abolished as a result of the country being granted debt relief in 2001.
Human rights response
International human rights law, as specified in the ICESCR and the International Covenant on the Rights of the Child, compel governments to use the maximum of available resources to realizing human rights. Availability does not only refer to resources under the command of the government, but those that could be available through international cooperation or improved management and generation of resources. In this sense, in complying with international commitments governments are responsible for exploring alternatives and where possible broadening their fiscal space by mobilizing the maximum amount of resources possible in rights-realizing ways.