There is no need for a tax increase to finance the Nation’s budget or for the reconstruction after the earthquake on August 10, says the renowned tax expert Santiago Pardo, who points out that, through the issuance of bonds subscribed by companies, the country could obtain 60 trillion pesos per year.
Doctor Pardo: how are we going to cover the $60 trillion budget gap if the President committed not to raise taxes? Will he have to break his promise or is that realistic?
The President, in his campaign, clearly proposed an approach aimed at making Colombia competitive and economically growing, for the benefit of all citizens. That cannot be achieved with the current taxes or with more taxes. What I believe the President has to do is keep his promise to review the tax system downward; not only not raise taxes, but lower them. Allow the country to grow in terms of investment, which is not possible under the current regime.
And since your question is then where to get the money to pay the Nation’s expenses and the new ones generated by the earthquake, there are methods. One that was already used in Colombia in the past, with great success, is the issuance of mandatory subscription bonds for companies. That is, the country could, with a bond subscribed by companies based on their profits, obtain the required resources. It could easily obtain 60 trillion pesos per year. And if those bonds are commercial, at a commercial interest rate, taxpayers can discount them in the market. This way, the liquidity the Nation requires for its expenses can be obtained, and taxpayers will be responsible for securing those resources.
What I believe the President has to do is keep his promise to review the tax system downward; not only not raise taxes, but lower them
In other words, your answer is yes, it can be done. That it is feasible to finance that trillion-dollar budget the Government will present to Congress. But let’s say those bonds would also be a way to kick the can down the road, because someday they will be redeemable…
Yes, you are right. It is a way to kick the can ten, fifteen, or twenty years ahead. But in that time, if the right thing is done regarding reviewing the tax regime in general, deregulating commercial legislation and permits, and so on, it is possible for the country not to grow at 2 percent, a mediocre rate at which we have grown in recent years, but rather to move to rates of 4, 5, 6, or 7 percent, which would allow us to pay those bonds in twenty years.
So, your proposal is not only that taxes should not be raised due to the earthquake disaster, but that they should be lowered, because the goal, if I understand you, is economic growth to expand the economy and benefit us all…
Yes. Above all, that is correct, the goal must be economic growth, and the only thing that matters and drives a country forward is economic growth.
We must have done something very wrong in the last sixty years while other countries must have done something very right. But I will not even compare with Korea, with the Asians, who have been so successful. I will compare with Panama and Costa Rica. How is it possible that Panama and Costa Rica have grown one percentage point per year more than Colombia for sixty years, with five million inhabitants, not fifty? That explains why Costa Rica today has an income per capita of $18,000, while Colombia barely has US$7,900. And Panama has US$19,000 income per capita, compared to Colombia, which again only has US$7,900.
That also means that the foreign investment that existed left, and there is no new investment. And there will not be if the tax regime offers a 4 × 1,000, an ICA, a wealth tax, a payroll tax, an income tax, and a dividend tax, to mention a few that, added together, amount to a 70 percent rate. With a 70 percent tax rate, no one will come to invest in Colombia. And for that reason, many multinationals have left the country, to serve the market from outside Colombia. They no longer produce within our country, they no longer generate employment here. They do it in Central America, in Mexico, in the United States. And the list is endless.
Like which big companies have left?
I’ll give you examples because it is unheard of. How is it that General Motors leaves and nothing happens here? How is it that Mazda leaves and nothing happens here? Michelin leaves and nothing happens here? Laboratories have left. Tobacco producers. Prismacolor, called Sanford Brands. Mondeléz, which makes chewing gum. And there are two hundred multinationals that have abandoned the country. Their production activity in Colombia today is managed from abroad; they generate employment outside Colombia, generate foreign exchange for other countries instead of doing it in our country, where they once invested.
Well, let’s see what businesspeople think of your proposal. But Doctor Pardo, what could go wrong or turn out very badly for President De La Espriella in this difficult stage that begins with the reconstruction of what was destroyed?
What could go wrong? Several things. One is that the goal of his economic policy is limited to stopping the deficit, controlling the debt. That should not be the goal. The goal should be economic growth. So, this terrible earthquake environment should not become an obsession with the fiscal deficit and debt. He has to remain focused on economic growth and turn this terrible tragedy into an opportunity so that within one or two years, 450 affected municipalities have been rebuilt. So, as I see it, this can be either an opportunity or a bottomless pit that hopefully the Government does not fall into.
So, it will not be “unavoidable,” as many experts think, to raise taxes, in view of a national budget project like the one the Government prepared for the 2027 fiscal year, which increases the budget to $634 trillion, above that of the Petro government?
I reiterate that it can be achieved without raising taxes. That is precisely what should not be done. When companies leave the country, it is for a reason. And when the figures show it, in this case that the effective tax rate is 70 percent, you cannot build a country like that.
The President has to lower taxes, ask the businesspeople themselves to subscribe to the bonds and obtain resources that way. No one is telling him to leave the State without money. He could receive 60 trillion pesos before the end of this year, which is what the budget increased compared to the Petro government, if he issues a bond, but that has to be accompanied by a tax reduction so that, in the end, the businessperson sees that the tax rate in Colombia is competitive with the world. That is why I believe the President can perfectly keep his promise.
And also, Doctor Pardo, a widespread concern is that the President and his government properly implement the channeling of resources where needed and do what is appropriate. And, above all, that they have proper safeguards to prevent the reconstruction money from being stolen. And carry out academic tasks such as instilling the concept of seismic-resistant construction and self-construction that, as I understand, was achieved in Armenia after the great earthquake of 1999. That is why the damage to infrastructure there was less, for example, than in Pereira.
That is true. In the last earthquake in Armenia, they took great care that the one hundred thousand or more structures affected were reviewed and improved with seismic resistance criteria. And that is why the destructive effect there, in this situation, was much lower. So, what has to be done here is the same.
But this, which is a terrible tragedy for a poor country like Colombia, is at the same time an extraordinary opportunity for the President to inject 40 or 50 trillion pesos into 450 municipalities and get them ahead, rebuilding all that necessary infrastructure for so many poor people left homeless.
And at the same time, he has to lower taxes. That is the central issue. Economic growth must be the President’s central issue. The deficit should not be the issue. And it is very good that he delivered his white paper, his ‘Book of Truth,’ but that is already history. He must now focus not on what was left to him, which was terrible, but on what he is going to do, so that Colombia, at the end of his term, is a country that grows at 5 or 6 percent annually.
And that the one generating employment is not mainly the State, because no State can sustain that. How is it possible to have created 900,000 hires through service orders? That is incredible. The one who has to generate all that employment is the private sector. And for that, conditions are required. There is nothing else but to copy what exists in the world. Let’s go to Panama and see why it has worked. Let’s see why it has been successful in Costa Rica. Let’s copy a little, well copied, what nearby countries that have succeeded in similar circumstances have done.
But we have to get out of all that “softness” of economic academia, which always suggests charging more taxes to the same people. They do not suggest economic growth; it does not appear in their lexicon. Nor does achieving control of evasion and smuggling. Very lightly, controlling spending appears in the proposals. The only thing that always appears is charging more taxes to the same people, to employees and formal companies in this country.
Economic growth must be the President’s central issue. The deficit should not be the issue. And it is very good that he delivered his white paper, his ‘Book of Truth,’ but that is already history
Well, let’s have faith that this is feasible. That this natural disaster Colombia has suffered with such an earthquake becomes an opportunity.
That is correct. And so far, what the Government has shown is presence. No one can complain about the presence, at least of the President and the Vice President. They have been everywhere, trying to respond quickly. Now what comes are the resources. Where are they? And how do those resources flow to those places? In an organized, controlled, and secure way so they are not lost. And I have an additional proposal where resources could also be obtained: reversing the Gripen contract.
How so? Do you think that is possible?
Of course. What has happened with this earthquake disaster is a very clear force majeure event. Almost all contracts include force majeure clauses that exempt parties from responsibilities and penalties if they cannot fulfill contracts. In this situation, with an estimated 60 trillion pesos in costs the State must assume, with 13 trillion pesos worth of the Gripens, it makes no sense to continue with the contract; it must be suspended.
Obviously, later we will ask a military expert what we do then to replace the planes or adapt the ones we already have with spare parts. But I insist: do you legally think it is feasible?
I have no doubt. It makes no sense in this situation, with needs of 60 trillion or more for the reconstruction of cities, with 450 affected municipalities, that the country is spending 13 trillion on buying planes that the country surely does not need today.
And who knows if they charged us well or badly…
You are absolutely right; most likely, they charged us badly.
MARÍA ISABEL RUEDA
Special for EL TIEMPO