Uruguay established health emergency tax to create COVID-19 Solidarity Fund or Fondo Solidario COVID-19

In April 2020, Uruguay established the COVID-19 Solidarity Fund or Fondo Solidario COVID-19,¹  to provide public resources to respond to the health crisis and mitigate the impacts of the pandemic for the general population. The funds were raised via a short-term COVID-19 Health Emergency Tax² applied to all who receive an income from the government over UYU 120,000 (USD 30,000), including 20 percent from top political officials.

Implementation

In April 2020, the Uruguayan government established the COVID-19 Solidarity Fund (through the passing of law 19,874) to provide resources for the primary health measures being implemented, activities of the National Emergency System, and payments for sickness, disability, and unemployment benefits provided by the Social Security Bank. The fund aimed to increase transfers to vulnerable households and strengthen the healthcare system’s capabilities to handle the pandemic (the author was unable to locate a clear definition for the term “vulnerable household”).³ In 2021, the fund was expanded to support struggling small and medium-sized enterprises (SMEs) with loans. It is unclear whether the fund still exists.

Cost

The COVID-19 Solidarity Fund was financed through a variety of sources, including revenues collected from the COVID-19 Sanitary Emergency Tax, a percentage of 2019 profits from the Banco de la República Oriental del Uruguay, up to 100% of the earnings accrued upon the passage of the National Development Corporation (CND) Law, local and foreign monetary donations to the fund, and certain funds from loans from international organizations and multilateral credit institutions.⁴

The COVID-19 Sanitary Emergency Tax applied to individuals who earn UYU 120,000 (approximately USD 30,000) and collected income from the public sector, including non-state public servants and companies where the state is a shareholder.⁵ The tax was levied on approximately 15,000 public servants working in the national government, local governments, autonomous entities, and decentralized services, and beneficiaries of subsidies granted to those who have held public or trust positions. Healthcare workers were exempt from the tax due to their risk of exposure to the virus.

The tax rate ranged from 5 percent to 20 percent, depending on the amount of gross income, for example, 20 percent was applied to those earning UYU 180,000 or more, i.e., elected officials and those with appointed political positions, legislators, mayors, and ministers.

Assessment

The policy has successfully raised critical funds to respond to a health crisis and support vulnerable households and businesses. On January 8, 2021, the government reported that the Fund had collected USD 625 million.⁶ Private firms also donated to the fund (information is unavailable on the percentage of the amount contributed). The government estimates that spending from the fund in 2021 will be equivalent to 1.7 percent of GDP, including additional health costs for purchasing vaccines and health supplies.

Critics of the COVID-19 Solidarity Fund have pointed to the lack of transparency in its management, including when and how the funds were utilized. The government has declared that this information will remain confidential until the end of the pandemic, per the exceptions established in the Law on Access to Public Information of 2008 (the author was unable to locate a clear timeline for the definition of “end of the pandemic”).

Tags

• Building Solidarity
• Health
• Income & Wealth
• Latin America & the Caribbean
• Middle-Income Country
• Redistribution
• Tax
• Uruguay