This week’s topic will undoubtedly be the fall of the financing law, an event that was in the deck of possibilities due to the distance that currently exists between the Government and Congress, but that continues to generate alarm among analysts, due to the risks that the country now faces in fiscal matters.
With this proposal sunk in the four economic commissions and the clear message from the senators and representatives, that the Executive must respect its independence, now the difficulties are for the Ministry of Finance, which before December 31 must issue the Budget decree for 2025, cutting at least the $12 billion that will not be in the expense accounts for the next year.
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Challenges ahead
Beyond the adjustments and the tightening of the belt that the National Government must make, a recent report puts on the table that the challenges go further, given that the term that is about to begin also brings demands in tax matters and budget execution to which attention should be paid.
José Linares, co-founder of Dapper, the first thing to take into account is that during the debates of the economic commissions in recent days, several members of the opposition criticized the increase in the tax burden and the modification of the tax rule, measures that the Minhacienda could insist on in the future, despite being inconvenient.
Recession
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“Although the presentation filed for the first debate of the Financing Law reduced the estimated fiscal space from $11.8 trillion (0.7% of GDP) to $9.8 trillion (0.58% of GDP), the four economic commissions approved the archival presentation,” he began commenting.
That said, he focused his attention on what he described as the main implication of the rejection of the financing law, which lies in the government’s need to make a cut of at least $12 billion (0.7%) of the GDP for the 2025 General Budget of the Nation.
“This implies that, although the government approves by decree the PGN 2025 for $523 billion (29.4% of GDP), in January it must reduce the amount of the budget by decree. As various reports have been highlighting, which insist that the definancing is at least $45 billion,” they noted.
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Dapper estimated that the necessary cut will be at least $39.5 billion and that if not carried out, compliance with the fiscal rule is put at risk. Beyond the fact that compliance with the 2024 fiscal rule is also at risk.
“The accumulated deficit from January to August of the central national government was 4.3% of GDP, and with data as of October, the accumulated tax collection fell at a nominal rate of 7.14%. On the spending side, PGN obligations reached $358.2 billion (21.3% of GDP) and grew 6.6% compared to November 2023,” they stated.
Tax risks
For José Linares of Dapper, both results (low collections and increasing obligations) They imply that by closing 2024 the possibilities of complying with the fiscal rule are low. That said, he warns that 2025 starts with a difficult fiscal outlook.
Crisis
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“On the one hand, there is the possibility that growth rebounds below expectations. This would imply a lower level of tax collection associated with economic activities during 2025, and the lower growth during 2024 would reduce income from income tax for the 2024 taxable year payable in 2025,” he added.
Finally, they warn that failure to comply with the fiscal rule together with greater fiscal pressures would lead to the cost of debt service growing compared to what was expected and that in the absence of cuts of at least $40 billion, the 2025 budget will remain unfunded. and with a high probability of facing a breach of the tax rule.
