The new finance minister, José Antonio Ocampo, is clarifying more and more the core of the tax reform that will be processed in Congress this yearon which, practically, the financing of a bulky social expense foreseen in the government of Gustavo Petro depends.
In an interview with SEMANA, the economist and university professor, who has a comprehensive experience that covers both the public and private sectors, and who has passed through a variety of sectors of the economy in his professional career, spoke regarding income tax; VAT; heritage; dividends; inflation. Also land taxes; of expropriation, and denied that he was an adviser to Gabriel Boric, president of Chile.
Ocampo spoke regarding his relationship with the Kirchners in Argentina and how long he plans to accompany the president-elect’s administration.
WEEK. As head of the joint you have already reviewed the economy numbers you will receive. In recent days, the outgoing minister, José Manuel Restrepo, spoke of the fact that the budget that will be left in Congress might shrink by 6 billion pesos, which might be complicated, since what is required are resources to fulfill the promises campaign. What surprises has he found so far?
JOSE ANTONIO OCAMPO. I don’t know if surprise is the right word. But otherwise, we’re in the middle of splicing, we haven’t finished it yet. We had the first meetings and others are coming this week that begins. We will continue to see some topics.
From what I have seen, I would say that the economic and fiscal situation in Colombia has positive points and also questions or negative points.
The reactivation has been strong, but the expectation is that there will be a slowdown in the economy in the second half of the year, even due to the inertia of the process underway, due to the impact of international events that are not favorable.
Inflation is still very high, it is a complex issue, therefore, the interest rates that the Banco de la República has adopted have had to go to a higher level than we had before the pandemic.
On the fiscal side, there is positive news in terms of increased revenue, but in any case, this year’s fiscal deficit and public debt remain very high.
The next government has an adjustment task, apart from responding to the country’s social demands, around which the president-elect has made several promises. These are challenges to which we will have to respond with a robust fiscal program.
No less important is the issue of the Fuel Price Stabilization Fund, which has a huge deficit and is additional to that of the national government. The correction of fuel prices is just beginning, with a considerable lag, which leaves that ‘pork rind’ in the hands of the next government.
WEEK. High rates, they are at 7.5% and inflation is expected to reach 9% at the end of the year. If inflation does not subside, despite the measures, what would happen to everything planned for economic growth and other goals? It might all fall apart.
JAO Curiously, there is encouraging positive news. In Asia, for example, inflation has already begun to subside. Therefore, this international effect may be weakening. Hopefully it will be like that. We will see that in the coming months.
But, yes, due to the rise in interest rates that the United States has made, due to which the European Union (the European Central Bank) is going to start doing, and due to many other international circumstances, we are going to have a tendency to slow down of the world economy. Many are even beginning to talk regarding a recession in the United States. This context is not the most favorable. We will have the immense challenge of managing these phenomena.
WEEK. What other measures would you apply to inflation in the short term?
JAO In the short term, not much more can be done. The very increase in the interest rate by the Bank of the Republic is going to have a limited effect, because the problem of current inflation is more one of supply than of demand. It is because of the supply of some goods: fuel, food prices, fertilizers. Products that are increasing a lot due to Russia’s invasion of Ukraine, outside the upward trend that they already had since the end of last year. This supply phenomenon is difficult to control and the interest rate affects demand.
The short-term measure that we are studying is to see how support for poor households is managed to correct this problem, on the one hand. On the other hand, national agricultural production must be promoted. It would be the most important short-term task of whoever is appointed Minister of Agriculture.
WEEK. When it comes to taxes, let’s talk regarding income. You point out that natural persons will be a priority, since the companies are bearing the lion’s share: 80%, and you want to turn the equation around: that 80% be paid progressively by natural persons. But there are seven rates in the income tax that go up to 39%. Why is that not progressive and how else do you plan to charge people who already feel that they are being charged too much?
JAO. Collections are very low for the income tax of natural persons, in general in Latin America, while that of companies is very high by international standards.
We have to see how it is ordered so that the load is more for natural people. On the other hand, the highest strata of the income distribution tend to pay less than the following, according to studies by the same OECD. I understand the wage earners who consider that they are paying what is fair and it surely is, and we hope not to affect them, significantly at least, but there are higher strata that pay less and have more mechanisms to avoid taxes (sometimes even evade).
There are many tax benefits that will have to be rationalized in order to increase revenue, finance greater social spending, and complete the fiscal adjustment process that we have already discussed.
WEEK. Among those tax benefits to natural persons who would dismantle, there is talk of the schedular system, which makes a difference between the collection if you are a pensioner or salaried. The exemption of 25% of the income that wage earners have would be dismantled. Everything is in a single article, article 260.
JAO. Well, we haven’t gotten into those details yet. You mention the case of pensions that today are exempt. The treatment they are going to have is a topic that we are going to analyze. We are also looking at whether that employee benefit is going to be maintained for the lowest income earners and removed from the highest. They are all issues that we are analyzing.
WEEK. During the campaign there was a lot of speculation. We have seen a lot of information regarding employees, surely there will be false things and others not. It has been said that people who earn more than 1,800,000 pesos will pay taxes. What is the reality?
JAO. They ask me for details that I cannot yet give, but I tell them: wage earners are generally the people who are going to be treated appropriately. You can think of high earners. Many have benefits and are also paid other than wages. Those are issues that need to be seen how they are handled. A manager or president of a company, which has different forms of payment, in practice, does not have to include some of them as tax income. That needs to be checked.
In pensioners, throughout the world, the typical thing is that the contributions are exempt, but not the pensions themselves. We must analyze high pensions.
Capital inflows are also on the horizon. Avoid that through companies, even family, expenses that are not income creation are charged, they are consumption expenses. Those are the issues that we look at carefully.
WEEK. With the tax on dividends and equity, there is talk that there might be double taxation, since they pay tax per dividend and then that money becomes part of the equity, which would also be taxed. How would they balance it?
JAO People who receive dividends are those with high incomes. Double taxation must be avoided, yes, but also the opposite: the dividend is paid to a family company and there is no tax, then that income is used to make consumption expenses. In any case, increasing the tax on dividends is something that we are still seeing if it is done.
In the wealth tax we are thinking of natural persons, not legal entities. It has been used in recent decades and was traditional. When I started working I paid wealth tax. So it’s not a strange thing. In the world there is talk of wealth tax precisely to achieve progressivity, because wealth is much more unequally distributed than income. Therefore, it makes sense to complement the income tax with the wealth tax.
WEEK. How much would the estate tax be?
JAO. We will announce it in due course.
WEEK. But would assets be taxed for the 1,000 million pesos?
JAO. Let’s wait and see what we will propose specifically.
WEEK. When we talk regarding dividends, we imagined the person who buys some shares in Ecopetrol.
JAO. Forgive me for insisting, but low-income people in Colombia do not buy Ecopetrol shares. They don’t have the resources to do it.
WEEK. Lots of workers did.
JAO If you show me a study that says that low-income people have shares in Ecopetrol, I will take it into account in my analysis. For now, I think that is not the case.
