Capital cities face higher costs and less fiscal margin due to increases in the minimum wage
The Colombian Association of Capital Cities (Asocapitales) presented an analysis of the effects of the increase in the current legal minimum wage in public finances, administrative operations and the provision of services in the main cities of the country.
According to the association, the adjustment of the 23.7% generates direct and indirect impacts in different sectors that depend on public resources and decisions taken at the national level, which represents new challenges for local governments.
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Pressure on urban services and social programs
One of the main impacts is evident in the urban public transportation systemswhich present a high dependence on the labor component. In these systems, between the 40% and 55% of operating costs correspond to salaries, social benefits and social security contributions.
The increase in the minimum wage directly increases these costs, generating pressure on the fees paid by users or, failing that, on the subsidies financed with municipal resources. This situation affects the financial balance of the systems, especially in cities where demand has not yet fully recovered.
In it social housing sectorthe impact would also be significant. Since the values of these homes are defined in minimum wages, any increase is reflected in the final price of the projects. This could translate into a lower supply of new housing solutions, difficulties in executing urban housing and improvement programs, and a reduction in the purchasing capacity of households.
He educational sector It is not immune to these effects either. Programs like the School Feeding Program (PAE) and other services associated with the operation of educational institutions face higher costs, especially in food handling personnel, school transportation and outsourced services. The increase in the minimum wage increases the cost per beneficiary and limits the possibility of expanding coverage.
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Administrative, fiscal and public procurement effects
Another impacted front corresponds to the fines, fees and administrative proceduresmany of which are expressed in minimum wages. The automatic increase in these references makes procedures more expensive for citizens and companies, can affect compliance levels and has direct effects on the collection from local governments.
In matters of public procurementalthough contracts are not directly indexed to the minimum wage, the increase in labor costs in the private sector is transferred to the offers presented in contractual processes. This translates into higher values in works and servicesreducing the scope of projects that can be executed with the same resources.
Asocapitales warns that the increase in the minimum wage can also affect the categorization of municipalities and districtswhich depends on variables expressed in minimum wages. This situation could generate additional pressures on territorial finances from 2027forcing greater income generation efforts to avoid category changes.
Finally, the association pointed out that this panorama constitutes a pressure scenario on local public investmentwith less fiscal margin, possible postponements of strategic projects and a reduction in the number of beneficiaries of social programs. Asocapitales indicated that it will continue the technical analysis together with the capital cities to consolidate a institutional position facing the effects of the increase in the minimum wage in the territories.
Source: Integrated Information System
