Financing law or tax reform are two terms that have been mentioned a lot during the last few weeks, since the reactivation plan that the National Government announced, and which it hopes to have ready in six weeks, contains an aspect dedicated to this issue, through which it hopes to collect $12 billion next year, according to accounts presented by the Ministry of Finance, to cover the fiscal gap that Confis still estimates today at $25 billion.
In the words of President Gustavo Petro, this is “a financial law that must balance the Budget that was already presented to the Congress of the Republic. Some say they want to return it; they would only deepen the possibilities of crisis and weaken the possibilities of reactivation,” recalling that the only way is dialogue to find solutions to the development of the country.
Although the Ministry of Finance assures that everything is clear and that the financing law will move along two red lines, which are not to touch the VAT and respect the family basket, calculations in the local economic panorama warn that there are many loose ends and that, as things are going, there would be more negative effects and the positive effects in terms of collection would only be seen until 2026.
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Concrete actions
It is enough to recall the words of María Lorena Gutiérrez, president of Grupo Aval, who said at the economic reactivation forum organized by the Presidency in Manizales that this is not the time for announcements and that, on the contrary, what is needed is to know concrete data that show where the Government’s actions will go.
Taxes
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“Let’s stop talking about the fact that we are going to make a national agreement. Let’s say that today we made the national agreement and we started to execute and do things, because we cannot delay by continuing to talk about the fact that we are going to make an agreement. I want to invite you to make this the breaking point that we achieved today. a national agreement to continue working together in all six sectors of the economy,” he said.
Another person who has also expressed his reservations about the financing law is the president of Andi, Bruce Mac Master. For this union spokesman, what is sought is nothing other than a tax reform, which will ultimately impact growth, at a time when indicators such as consumption and production need a boost to leave the bad streak behind.
“At this time, after the tax reform of 2021of the tax reform of 2022, the largest in the history of Colombia, one can be sure that neither Colombian households, nor entrepreneurs, nor SMEs, nor companies have a way to transfer more resources to the State to spend, invest or even make some important expenses in terms of social investment,” he said.
Colombian pesos
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Mac Master was clear that, on the contrary, “the State will have to adjust to the resources it has” and that “the only possible fiscal reform at this time is to cut spending. The State must accept that the size of the economy is what it is today, that the capacities of the economy are the limited ones that we have and that it must adjust to this.”
Underestimated collection
For now, the only thing that is known is that the accounts of the Higher Council of Fiscal Policy speak of a gap of $24 billion in next year’s budget, which the Ministry of Finance hopes to fill with the proposal to advance compliance with the fiscal rule so that the shortfall is reduced by $12 billion and thus leave the shortfall in the financing law.
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However, for the former Minister of Finance, José Antonio Ocampo, This lack of clarity leads to a great deal of speculation, since from their perspective there is no room for manoeuvre and once again natural persons will be the target of this change in the tax scheme that is planned to be implemented.
“One of the proposals is to increase the tax on high-income individuals by reducing benefits. That was already done in 2022. So, we would have to see exactly what the proposal is and how many additional resources it will provide. On the other hand, I don’t see any political atmosphere, it is a proposal that in Congress has, I would say, very little chance of being accepted, even the president of the Senate has declared himself against it,” Ocampo said.
For this economist, “the Government is underestimating tax revenues. I believe that the tax reform, the set of tax reforms for 2021-2022, will provide more revenue this year than what they are planning,” which is why he advises financial authorities to be patient before making any move.
Ministry of Finance – Ricardo Bonilla.
Courtesy – Ministry of Finance
Start with the Budget
Former Vice Minister of Finance, Juan Alberto Londoño, said that instead of looking for new income, the first thing the Casa de Nariño should do is understand that “the budget for next year is disproportionately inflated, according to the Government, tax revenues will grow by about $60 billion, which is equivalent to 22.5%”; so that they can focus on cutting spending.
“Thinking about such an increase in tax revenue when the country has a growth rate of less than 2% is an absolute nonsense. It will destroy investment, destroy a large number of jobs and will undoubtedly lead us to a recession… Congress must demand real and significant spending cuts. There is no other way.”
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Like the other analysts consulted by Portafolio, Londoño maintains that “I do not understand what taxes can be affected, since the President himself has stated that the personal income tax base will not be expanded and VAT will not be touched. It is not clear how the tax collection is intended to increase. Current taxpayers cannot afford to assume this higher tax burden.”
Finally, Munir Jalil, chief economist of BTG Pactual for the Andean regionexpressed skepticism about the government’s ability to raise the $12 trillion needed by 2025 without resorting to income taxes, since any increase in this area would generate income only in 2026. He also raised doubts about the possibility of the government deciding to increase VAT, considering the political context and previous opposition to this measure.
“This was the Government that, when they tried to touch the VAT, when they were in opposition, they even removed Minister Carrasquilla at the time for that, back in 2021. So, one wonders, will they dare to touch the VAT? Now that they are in power. That is why I do not believe it, because it is very difficult for me to understand, that is why I want to see this project,” he concluded.
In this way, there is nothing left but to wait to find out what points the Ministry of Finance will address with the financing law that they will present to Congress, while skepticism continues to reign. in the markets and time is running out to implement a recovery plan.
