Correa made the right decision to withdraw his controversial tax proposals; now at a crossroads, the question is what will he do next?

Jun 17, 2015 | 6 comments

By Sylvan Hardy

Rafael Correa made the right decision Monday night to pull the plug on proposed legislation that would have raised taxes on inheritances and capital gains. He realized he was in danger of losing the battle for the hearts and minds of Ecuadorians.

Although he blamed his opponents for twisting the facts about his plan and provoking violent protests, he mostly had himself to blame for doing a poor job of planning the tax increases in the first place, and explaining them to the public in the second place.

It’s true that the political opposition misrepresented the facts and generally attempted to spread fear and discontent, but this is what the political opposition always does. It’s their job, in fact, and it happens in every country in the world where there is a semblance of free expression and democracy.

Rafael Correa

Rafael Correa

As for the violence he wants to head off, there has been relatively little of it in the protests so far. There have been confrontations between police and protesters and a handful of fights between protesters and Correa supporters in Quito and Guayaquil, but overall, the level of violence has been mild compared to protests of the past. In Cuenca’s Calderon Park, there was some pushing and shoving and several paint balls were heaved into the crowd Thursday night, but nothing major.

Correa’s fear of the protests is based in events of recent Ecuadorian history, namely the public uprisings that led to the ouster of three presidents in the last 15 years. Those protests, including the one that deposed Correa’s predecessor Lucio Gutierrez in 2006, began small and grew, attracting a variety of constituencies and bringing together supporters of the far left and far right. Although it is highly unlikely that Correa would fall victim to the mob –-his approval ratings are still above 50% while Gutierrez’s languished in the low teens at the time of his ouster— he correctly saw a rising tide of protest that would have dominated the nation’s affairs for weeks, if not months, and moved to cut it off at the pass.

As for his plan to raise inheritance and capital gains taxes, he now has the chance to revise it and present his case in a more comprehensible fashion to Ecuadorians, hopefully without the bewildering array of charts and graphs that only convince the true believers. Whether he can jettison his often condescending and unctuous “father knows best” attitude is another matter altogether.

Almost no one bought his claim that the new taxes would only affected 2% of the population. It had the same looney-tunes ring to it, in fact, as his claim that the oil drilling he allowed in the Yasuní nature preserve would only affect an area the size of a football field.

He is on sound economic footing in claiming that wealth is concentrating in the hands of the wealthy. It’s a trend that began almost 30 years ago that few economists, no matter their stripe, would argue. The question is how to confront it. At this point, he cannot afford to alienate Ecuador’s business sector, which is already reeling from a blizzard of new rules and regulations, or voters who worry, correctly or not, that they will not be able to pass their heritage on to their children.

There is also the question of whether he will actually allow a “healthy public debate,” as he proposed Monday night. Labeling those who object to his plan as fat-cat liars and scoundrels is hardly a good start.

What is fairly certain is that if his tax revisions are reintroduced to the National Assembly at all, it will be in greatly altered form with reduced rates of taxation.

Correa has accomplished remarkable things for Ecuador during his presidency. The proof is clearly visible. Almost all Ecuadorians have benefited, including the English-speaking expat community.

My advice to Correa? Don’t blow it now.

 

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