Swallowing frogs
A new concept is taking shape in Colombia: a president without a congressional majority. Though we’ve yet to see how such an arrangement could work in Colombia, the experiences of neighboring governments, like Vicente Fox’s in Mexico and Pedro Pablo Kuzcynski’s in Peru, are not encouraging.
Cambio Radical (led by German Vargas, and holding 15% of Senate seats), Partido de la U (led by Juan Manuel Santos via Aurelio Iragorri, with 13%) and the Liberals (led by César Gaviria, with 13%), could form a congressional majority. All three leaders dislike ex-president Álvaro Uribe, and feel disregarded by his ally, President Iván Duque. Traditionally, these parties collaborated with governments. But now they’ve produced something genuinely new: an apparent agenda of their own, which they may try to pursue against the government’s will.
A president without a solid coalition, facing an alien agenda championed in Congress by so-called independent parties is unheard of in Colombia.
How worrisome is this political scenario? Can the government eventually build a congressional majority? Or will its reform plans sink, while those of independent parties are approved, and leftist parties manage to paralyze state efficacy?
Tax reform plans are already entangled in this dynamic. During the campaign, Duque promised to make the tax code friendlier to businesses. He didn’t tell the whole story: to offset the (temporary) losses in revenue from a corporate tax cut, individual income taxes would have to rise, and more goods would be subject to the 19% VAT. It would be up to the new Minister of Finance, after the election, to tell Colombians what was in store.
Carrasquilla took this unsavory task in stride, outlining the package to economic reporters on August 16th. The proposal calls for cutting the corporate tax rate from 33% to 30%, and other positive moves to boost business confidence, such as eliminating the minimum tax on companies even if they lose money. Of course, the business community is all in favor of these proposals. But public reaction to the individual income tax base expansion, and a 19% VAT tax levy on all goods currently taxed at 0% and 5%, including staple foods, was negative (despite announced rebates to cushion the blow to low-income families). Though it may be unfair to characterize the plan as “lowering taxes to the rich while increasing taxes to the poor,” that’s the current public narrative -- which will make it hard for Carrasquilla to convince Congress to pass this bill. To make matters even more fraught, Cambio Radical is proposing its own tax reform plan, which focuses only on cutting the corporate tax, and (unrealistically) would cover lost revenues only by curbing tax evasion. Having two tax reform plans simultaneously under discussion in Congress will be a spectacle worth witnessing.
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