Alberto Carrasquilla, Minister of Finance and Public Credit: Interview

Interview: Alberto Carrasquilla

In which ways is the recent fiscal reform likely to have an impact on the administration?

ALBERTO CARRASQUILLA: The reforms seek to reduce the fiscal deficit from 3.1% in 2018 to 2.4% in 2019. We also aim to boost capital inflow through the management of trusts, lower spending and increase tax collection by 0.4%. We expect to raise COP7.1trn ($2.4bn) and our financial plan targets spending of up to COP4trn ($1.4bn), while continuing to maintain current levels of public investment. Our initial fiscal projections suggest that we should create a primary surplus in order to create a taxation structure that incentivises investment. Private sector investment will thus be boosted by an increase in public saving and the reduction in taxes to the private sector.

We are seeking to assign resources with the aim of maximising the returns. There are a number of areas that can be targeted to ensure greater efficiency in spending, such as those associated with the allocation of subsidies, the health care system, legal expenses incurred by the state and human resources.

A recent study found that directing funding towards wealth-creating programmes in sectors such as agriculture, construction and manufacturing can increase the fiscal multiplier effect by 17%. Under our medium-term reforms, we aim to lower the administration’s operational costs – which account for around 15.4% of GDP – by COP2bn ($684,000) per year, for four years.

How can the taxable base be increased?

CARRASQUILLA: Much like other emerging markets, informality is a challenge that needs to be overcome. In this context, the fiscal reform programme includes a special fiscal system aimed towards small and medium-sized enterprises, entitled El Simple.

Learning from previous reforms implemented in 2012 and 2016, we aim to incentivise companies to take the crucial leap from informality to formality. The policy is based on incentivising growth by instituting differential taxes depending on a range of economic activity. Moreover, the flat tax included in the reform will consolidate all taxes to micro- and small enterprises – including value-added tax, income tax, payroll tax and social contributions – lowering the complexity and time associated with the process. This tax filing system is handled by the government and is applicable regardless of the region where the company is registered. The use of electronic invoicing is significant, as demonstrated across other markets such as Mexico or Brazil, which saw a 30% reduction in tax evasion after its application. For Colombia, this would mean increasing tax collections by 0.2% of GDP.

What are the government’s financing priorities?

CARRASQUILLA: Government spending is constantly undergoing assessment, although investment in education, security and health care lead the charge. The challenges facing Colombia’s infrastructure are also a priority, with the Fourth Generation road infrastructure investment programme as a prime example. In this context, providing collateral and guarantees for large projects through the issuance of public debt have been an important component of our strategy, but we need to continue leveraging international investment.

Describe the biggest challenge facing Colombia today and what can be done to overcome it.

CARRASQUILLA: Our main challenge is accelerating growth to reach around 3.6% in 2019, and hopefully, 4.5% in the next few years. To achieve this, private investment has to increase at a pace of 4% to 6% per year, from 23% of GDP to around 25%. For this to happen, Colombia must improve its infrastructure, human capital, and research and development capabilities, which have been lagging behind. Efficiency in public spending needs to be improved by maximising returns on each peso spent by the government. Challenges concerning social indicators, informality, poverty and most recently regional instability, also have to be examined.