A four-year tax hike proposed by Colombia’s government will be insufficient to cover the $6.5 billion budget gap, according to an analysis by an economic think tank.
Fedesarrollo has claimed that even after raising financial transaction and estate taxes, there will still be a deficit of around $2.5 billion, according to the Colombian website Pulzo. Furthermore, revenue from the financial transaction tax will fall off as the tax is already set to be reduced in 2015.
This conflicts with more optimistic calculations made by the Ministry of Finance which has estimated that the increased taxes will cover more than $5 billion of the budget gap.
According to Vice Minister of Finance Andres Escobar, the tax increase will prevent the government from financing public spending with more debt, a move currently prohibited by fiscal rules, reported newspaper La Republica.
He added that the structural deficit targets projects that government borrowing should be reduced in 2014 by 2.3% of Gross Domestic Product (GDP).
Other critics of the reform, such as Bruce Mac Master, president of the National Association for Colombian Businessmen (ANDI), and ex-Minister of Finance Juan Camilo Restrepo, say that while it is important to close the budget gap, it is a short-term fix that does not address more structural fiscal problems such as the likely fall in oil revenues and proposed investments in health and education.
Meanwhile, Defense Minister Juan Carlos Pinzon has been more optimistic about maintaining the estate tax.
Though he did not address the budget gap, he claimed that taxes will go toward funding security in the country, which in turn generates economic growth and increases the confidence of domestic and foreign investors, according to reports by RCN Radio.
The tax reforms are set to be debated in congress this week.
MORE: Crunching the numbers on Colombia’s 2015 budget
- Reforma tributaria para comprar el mercado (La Republica)
- Habría reforma tributaria para recaudar $12,5 billones y financiar el presupuesto de 2015 (El Pulso)
- Ministro Pinzon pide mantener el impuesto al patrimonio (RCN Radio)
- Con cambios en impuestos al patrimonio, el Gobierno debe recaudar $5.1 billones (La Republica)