Within the framework of the fiscal pact, while experts value that the revenue target is lower than the original project, they see that the path to achieving it is not easy, given the stance shown by the opposition and the limited instruments available for modification.
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On Wednesday, there will be a key meeting at the Ministry of Finance. At 2:30 PM, they will address the sources of financing and the details of the figures provided by the Marfán Commission report and the OECD report, both being main inputs to advance the fiscal pact.
According to information provided by the Ministry of Finance, for the 2025-2028 period, an average of 0.6% of GDP in additional revenues is required, on top of what could be obtained through growth-stimulus measures contributing 0.5%, plus 0.13% from spending efficiency and 1.5% from tax compliance. All this sums up to 2.1%, and the remaining 0.6% needed to reach 2.7% will come from tax increases included in the revenue bill to be presented in March 2024.
This figure, equivalent to approximately US$2 billion – based on 2024 projections – is what will now be sought through tax hikes, and represents half of what was intended to be collected with the tax reform rejected in March. In that project, the estimate was 1.2% of GDP.
At the political level, the opposition appreciated the greater emphasis the Executive is giving to growth and public spending efficiency, but are cautious about advancing a tax increase to collect that 0.6% of GDP. Among the arguments, one frequently mentioned is that the government should first submit pro-investment projects or administrative changes before discussing taxes. There is also a view that the government should refocus its actions and concentrate purely on economic reactivation.
And now, experts stated that while they value that the revenue target is lower than the original project, they see that achieving it will not be easy, given the opposition’s stance and the limited instruments available for modification. This is considering that there will be no tax increase for companies, nor the wealth tax, nor taxes on retained earnings.
Minister Marcel has already indicated that there will be no corporate tax increases, and neither the wealth tax nor the retained earnings tax will be included. Therefore, the changes that could remain are the increase in personal taxes, which would raise 0.23% of GDP, and the dual system with revenue of 0.15%. New tax options will need to be explored to complete the 0.6% of GDP required.
Experts’ recommendations
Javier Jaque, Tax Consulting Partner at CCL Auditores Consultores, says that the focus should be on corrective taxes such as tobacco, alcohol, green taxes, luxury goods, or the purchase of non-essential goods.