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November 11, 2022
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Deficit and social spending?: what would the tax collection be used for?

Deficit and social spending?: what would the tax collection be used for?

The tax reform of the government of Gustavo Petro it is in the conciliation stage in Congress after being approved by the Senate and the House of Representatives.

This is one of the flagship projects of the government of the leftist leader.

(Read: Tax: the tax on churches fell completely from the reform).

However, initially a collection of 25 billion annually had been proposed. Finally, it is being negotiated a collection of 20 billion pesos, which will be confirmed once the entire conciliation is finished.

Although it is not yet known officially and explicitly what the tax resources would be used for, there are several messages that the Government has sent in this regard.

During his campaign, President Gustavo Petro assured that the collection would be allocated, in its entirety, to social programs to help the most vulnerable households in the country.

By September, the president assured that the proceeds would be used to pay for debts and programs focused on improving people’s quality of life.

(Also: Is Petro’s tax issue getting entangled? Debate continues in Congress).

Specifically, it would be invested in the payment of the country’s debt, educational infrastructure, agricultural infrastructure, tertiary roads, purchase of land and drinking water.

For his part, the Finance Minister Jose Antonio Ocampoafter the approval of the initiative, assured that: “The additional resources will be allocated to social and productive development programs, necessary to improve the quality of life of Colombians and advance in the productive transformation. Thanks to the approval of the reform, monetary poverty would be reduced by four percentage points, which is equivalent to two million people”.

tax debt

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Along with this, an analysis carried out by the Spanish newspaper El País indicates that with a collection of around 20 billion by 2023, “the reform promises to reduce the fiscal deficit by around 1.2% of GDP. This is a relevant contribution that brings tax collection closer to the Latin American average, but it is far from being enough to close the fiscal deficit.“.

It is important to recognize that at the end of August, and according to figures published by the Directorate of Public Credit of the Ministry of Finance, the gross debt of the central National Government exceeded $804.9 billion. As a percentage of gross domestic product (GDP), this stood at 59.1%.

(Keep reading: Shyness of the Government?: This is how taxes were imposed on natural persons).

On the other hand, the forecasts of the Fiscal Observatory of the Javeriana University indicate that the collection would be destined only to spending and not to debt. “What is expected is that a budget addition is guaranteed so that public spending for next year increases by 20 billion pesos. In other words, the expectation is not that the money will serve to reduce the deficit, but that it is money that will be spent on the social programs proposed by President Gustavo Petro.“, explains Oliver Pardo, economist and director of the Observatory.

The ideal tax reform, according to Pardo, would not aim to increase collection but to change the way in which the State is financed through more efficient tax collection.

The ideal would be to have a structural tax reform. It can even be a proposal whose collection objective is $0, but that changes the sources of government income to be more fair, equitable and efficient.“, assures the expert.

(See: Tax collection, subject to international prices).

If the reform has not been approved, would be problematic for the government to fulfill its campaign proposals. “The problem would have been more political than economic because all the money that is intended to be raised will be used for spending and not for reducing the deficit,” Pardo points out.

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