Debt, and in particular sovereign debt, is an ever-growing concern. It is persistently growing in size, and interest payments are drying up much-needed public funds in low-income countries. As tax systems become more regressive, funding the service of debt is an upward distribution of wealth from low income citizens to a wealthy financial investor class. As profitability dwindles in job-creating sectors, debt as a wealth-extracting form of investment comes at the expense of more egalitarian job and wealth creating investments.
Some issues around debt are far less discussed than they should be, and the Progressive International is the perfect platform to advance the debate and coordinate progressive movements towards change.
Overall, the following principles should guide progressive principles for debt justice:
(1) The ownership of government debt—and the profits that derive from it—should be democratized.
(2) Taxes should be progressive, and the wealthy should not be able to avoid taxes. Governments could therefore take on less debt.
(3) Low income people's purchasing power should not be boosted by drowning them in debt, and instead low-income people should be supported by sharing society's wealth through real increases in income.Today, we see in many Global South countries the mass incarceration of poor women for their inability to pay debts as small as 100 dollars.
One specific issue that requires attention—and that the Progressive International is well positioned to take on—is in how we measure government debt in the first place. It has become conventional to measure government debt as a percentage of gross domestic product (“GDP”), and important policy and financial decisions are based on this measure including countries’ credit rating, interest rates, and decisions around debt sustainability. However, GDP, which measures today’s output in a country based on today’s market prices, is not the resource pool from which the government is able to draw upon to pay its debts. Tax revenue is.
The traditional GDP method underestimates the consequences of debt on low-income countries because they almost always collect less taxes as a percentage of GDP compared to their high-income counterparts. The use of GDP as the measurement also creates disparities between countries: a country whose government tax revenues are half of another country will bear double the burden of servicing the debt, even if this country has the same levels of debt relative to GDP.
We should move away from the GDP measure and instead make important policy decisions based on indicators that look at a country’s tax base or revenues.
Yet, such a change—and others required to realize the three principles above—has been hard to come by because the current regimes favor the creditors and the rich. It will take fresh policy thinking and global progressive coordination to change the status quo.