巴黎银行拉美地区宏观策略哥伦比亚财政健康201808229页

22August2018MacroMattersColombia’sloomingtaxandpensionreformslimittheroomforlaxfiscalpolicy.Weexpectthenewgovernment’sfiscalpolicytobetighterthanitsinitialproposals.Strayingfromthefiscalrulemightimperilthesovereign’sinvestment-graderatings.Colombia’scurrentfiscalpositionappearstobesoundinthenearterm.Thecountryplanstoend2018witha0.5ppofGDPprimarysurplus,whichwebelievecanbeeasilyachieved–oil-relatedrevenuesareexpectedtoriseby1ppofGDPandgrowthisforecasttoaccelerateto3.0%thisyear(seeColombia:Uppingtheante),andanadditional0.3ppwassavedfroma2017fine.However,thetruechallengelieswithmeetingfiscaltargetsfor2019andbeyond.Additionalfiscalconsolidationistrickyforatleasttworeasons.Firstly,revenuesarelimitedbyanarrowtaxationbase(onlyaround10%ofhouseholdspayincometaxandevasionplusfiscalcostsassociatedwithinformallabourtallyfor4%ofGDP,accordingtotheOECD).Secondly,theburdenofcurrentexpendituresinthetotalbudgetisontherise,asage-relatedpressuresampupandsocialprogrammesexpand–fightingforspaceinamodestbudgetof14%ofGDP.Thenewgovernmentplanscomprehensivereformstothetaxandpensionsystems.Althoughdetailsareyettobedisclosed,reportssuggestthattheyarelikelytobeinlinewithourexpectationthattheDuqueadministrationwilltakeaconservativeapproachtopublicfinancesasopposedtoinitialtalksduringcampaigningofalaxerneartermfiscalpolicy.ThecornerstoneofDuque’splanistolowerthetaxburden.Weexpecthisadministrationtofirstfocussolelyoncompaniesbyloweringthecorporatetaxratetoaround28%(fromthe33%nowplannedfor2019).Thisisexpectedtohappenwithinthenexttwoyearsandtobebalancedoutbyreducingexemptionsandbroadeningthetaxbase–throughalowerminimumthresholdforindividualincometaxcollection,modernisingtheIRSandclosingloopholes(seebelow).Infochart1:FiscalimpactofannouncedmeasuresSource:FinanceMinistry,OrganisationforEconomicCo-operationandDevelopment(OECD),DIAN,BanRep(2018),BNPParibas.FinanceMinisterAlbertoCarrasquilla–aseasonedeconomistwhowasalsopartoftheUribeadministration(seeColombia:AguidetotheDuqueadministration)–haspromisedto“boostprivateenterprise”bymakingiteasiertodobusinessandthrough“fairer”taxcollection.Besidesfiscalreforms,theministerhasalsoemphasisedonlabourreform,reductioninnon-wageemploymentcosts(around35%ofGDP),andlessredtapeacrosstheboard.Butjusthowmuchcashcanthesemeasuresrealisticallybringin?Inourestimates,a10%reductionintaxevasioncouldresultina0.3ppofGDPgainforthecentralgovernment’srevenues.Duqueplanstoslashevasionby50%bytheendofhisfour-yearterm,increasingpotentialsavingsbyfive-fold.Besides,heisalsotargetingexemptionssuchasthoseonvalue-LuizEduardoPeixotoLatamEconomicResearchBancoBNPParibasBrasilSAUphilltaskforfiscalconsolidationafter2019PublicsectornumbershaveimprovedWeexpectaconservativeapproachinfiscalpolicyCorporatetaxestobeloweredfirstDothenumbersaddup?Pro-businessstancehasbeenreaffirmed22August2018MacroMatters(VAT)duties–whichaloneaccountedfor6ppofGDPin2017,accordingtothetaxcollectionagency(DIAN),andmostlybenefitshigherincomehouseholds.Duquealsoplanstowidenthetaxbasebyreducingtheminimumthresholdofincometaxcollection.Thereductionofthelowerboundbyoneminimumwage(toaround3.7minimumwagesfromthecurrent4.7)hasthepotentialtobringinadditionalrevenueofaround0.3ppofGDP,inourestimates.Carrasquillahasfloatedathresholdcloserto2minimumsalaries,butislikelytofacestiffopposition–Duque’scoalition,forinstance,alreadylostalargeparty,dueatleastpartlytofearofanunpopularreform(asthe2016Santosbillprovedtobe).Howmuchrevenuewillthegovernmentloseduetotaxreduction?Inourestimates,witheachpointreductiontothecountry’scorporatestandardtax,governmentrevenuesshrinkby0.1ppofGDP.Thismeansthat,areductionofthecorporatestandardtaxto28%,implyinga0.45ppimpactonpublicsectoraccounts,couldbebalancedoffbymeasuresthatreducesubsidies,widenthetaxbaseandtightensomediscretionaryitemsinthebudget.Duringcampaigning,Duque’steamhadproposedtoloosenthefiscalrule,buthassincevowedtokeepitintact,Inourview,thenewadministrationisalreadylikelytostarttotightenthebeltsonexpendituresthisyear,asitplansa1ppsavingspendingoncapitalexpenditures.Withinvestmentalreadydownto2.5%ofGDP(from3.5%twoyearsago),wethinkamorerealisticnumberiscloserto0.5pp,asplannedinthisyear’sbudget.Animmediatereductioninthecostsofthepensionsystemispossible,butwillalsofacepoliticalopposition.Currently,halfofthe5ppofGDPspentonpensionsgoestotheprimamediasystem,whichheavilysubsidiseshigherpensions.Duquevowedtoreduceoreveneliminategrantstoricherfamilies,whichcouldalreadyleadtoannualsavingsof0.5ppofGDPinthefirstyear,accordingtoCGIP.Hehasalsopromisednottoraisetheminimumageforretirement,ameasureneededforlongertermsustainabilityofthecountry’spensionssystem.Alltold,thecountry’sfiscalruleimpliesadownwardtrajectoryofdebt-to-GDPratio(seeColombia’sfiscalrule:Looserpants,flatterwaistline).Inthiscontext,weexpectthecountrytokeepitsinvestment-graderating,ifitfollowsthepathimpliedinthecurrentfiscalrule.Our“fair”ratingmodelputsColombiacomfortablyatBBB,consideringthescenari