Minhacienda makes clear the need for a new tax reform – El Heraldo (Colombia)

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The Government’s projection of Colombia’s fiscal deficit this year is 8.2% of GDP, while it forecasts a 5.5% drop in the economy, the latter figure being less than the forecast revealed yesterday by the Monetary Fund International (IMF) of a contraction of 7.8% for the country.

The economic indicators with which Colombia would close in 2020 are not the most encouraging due to the macroeconomic shock that the country is experiencing due to the coronavirus pandemic, which has also led to the suspension of the fiscal rule for two years. Faced with this scenario, the Government made it clear that its strategy for recovery in the post-pandemic includes a tax reform and the disposal of assets of the Nation, among others.

Growth in 2021. The slightly more optimistic vision for 2021 is based on the fact that during 2019 the Colombian economy accelerated, growing 3.3%, which shows that it has solid fundamentals.

In the presentation of the Medium-Term Fiscal Framework (MFMP), the deputy finance ministers Juan Pablo Zárate and Juan Alberto Londoño announced that the outlook for 2021, against which there is some uncertainty, could be one of recovery. The deficit is projected to fall to 5.1% of GDP and economic growth to be 6.6%.

He also ruled out that the government is considering requesting a moratorium on the debt, since although the expected deficit this year is 8.2% of GDP, there are already clearly identified sources of income and financing.

“With a growth of 6.6% in the next year we would be slightly above what the GDP was in 2019 and 7 points below what we were thinking in February and the past fiscal framework of what the GDP was going to be in 2021. We are accepting that the pandemic is going to have a significant effect on our projections, ”added Vice Minister Zárate.

Disposals of up to $ 12 billion are considered within the recovery strategy to help finance spending, said Deputy Minister Zárate.

Recovery plan

“We do not know if the tax reform should be ready before 2022, we have been clear in ensuring that we cannot begin the discussion of a tax reform before overcoming the pandemic and seeing the effects that it generated, we have to pass it and take the measurement to start the discussion, ”said deputy minister Londoño.

He clarified that until now, the adjustment in spending and income has not been identified. We will work with the commission of tax experts with whom we will analyze the tax benefits and burdens that the reform would have. The expected revenues from the reform would be in the order of 2% of GDP.

Similarly, an adjustment in public spending is contemplated.

He added that in Colombia the number of individuals who pay taxes is still low and that this can be analyzed with the commission of experts.

Deputy ministers noted that the exchange rate is expected to close the year slightly below $ 4,000. In addition, an average price of a barrel of Brent oil is projected, a reference for Colombia, in a range between USD35 and USD40.

Economic assumptions

Complicated theme. Carolina Monzón, head of Economic Analysis at Banco Itaú Colombia, affirms that with significant drops in tax revenues and high demands on spending, the fiscal consolidation presented by the Government for 2022 becomes much more complicated.

“Both the Brent price and the exchange rate and almost all asset prices have very high volatility and are quite unpredictable,” added Londoño.

“Especially because it incorporates a new tax reform, highly improbable, given the low political appetite in the vicinity of an electoral period,” he added.

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