After the resignation of the British Prime Minister, Liz Truss, President Gustavo Petro published a trill in which he assured that “Britain’s economic crisis began when an attempt was made to lower taxes on the wealthiest (…) a lesson to be learned”.
He shared that trill while his government tries to carry out the most ambitious tax reform in the history of Colombia, a fiscal adjustment with which, initially, there was talk of raising an additional $50 billion to $75 billion in taxesbut that over the months has been progressively reduced and today there is talk of a collection close to $20 billion.
Also, the government has defended that the emphasis of the reform —which has already passed its first debate in Congress— is on the income tax for natural persons. And since the project was proposed, both Petro and his Finance Minister, José Antonio Ocampo, They have defended that it is oriented towards the 4,000 richest taxpayers in Colombia.
The truth is that with the progress of the discussion, from various fronts they have indicated that the reform will have an impact on the basic basket of the most vulnerable families by taxing ultra-processed foods that, although they are not healthy, are part of the habits of the low-income households.
The consulting firm Raddar, for example, calculated that the tax would raise annual inflation between an additional 3% and 4%.
Is the English crisis really due to taxes?
Although according to Petro, the English crisis “began when an attempt was made to lower taxes on the richest”, the local media found that the genesis of the problem it is in the covid-19 pandemic, just as it is happening in the rest of the world.
During the time of crisis, the United Kingdom tried to stimulate people’s spending to lift its economy, something that later led to high inflation that they are facing.
The British press also reports that Brexit (exit of the United Kingdom from the European Union) also affected the flow of workers who came from the continental area to work in jobs such as driving trucks and warehouses, among others.
The permits of those employees might not be renewed and there are problems to fill the gap. Added to all this is the energy crisis caused by the war between Russia and Ukraine, which has raised service bills and, even worse, there is a risk of running out of supply as winter approaches.
Liz Truss’s sin, according to former Finance Minister Juan Camilo Restrepo, was that “He irresponsibly lowered taxes and increased subsidies without having how to finance them. The markets punished her; her pound was devalued but when she rectified it was already too late ”, since the immense discomfort with her measures, added to high inflation, led to her losing political support.
In any case, President Petro is reminded on social networks that he must apply his own preaching and maintain fiscal discipline. This taking into account that you have mentioned, for example, ignoring the Medium-Term Fiscal Framework (MFMP), which is the margin that should never be broken so as not to put the stability of the Nation’s public finances at risk. Apart from that, they charge you that you propose a high spending on social subsidies.
“What Petro is proposing is crazy, activating the economy with subsidies makes no sense. Theoretically, John Maynard Keynes says that the economy can be activated by increasing spending via fiscal spending, but if you are financing that fiscal expenditure with debt or you are financing it with taxes, then the effect is nullified”, pointed out Andrés Coba, economist and teacher.
