Promised Smaller State, Got a Bigger Tax Bill Instead

President Abelardo De La Espriella campaigned on shrinking Colombia's state by 40% without raising taxes. The Economic Rescue Bill his government sent to Congress on October 29 — about two weeks ago — does something else entirely. Most of the adjustment comes from higher taxes and social security contributions, not spending cuts. Strip away the government's bookkeeping and the bill carries 2.8% of GDP in tax and contribution increases against 1.4% of GDP in cuts.

The trick is in the labeling. The government counts higher employer and employee social security contributions, plus higher excise taxes on tobacco and alcohol earmarked for health care, as 'reducing the size of the state.' Together they would raise between 1.3% and 1.5% of GDP each year. Reclassify them as what they are — revenue pulled out of people's wages and purchases — and the pledge falls apart. Only 1% of GDP of the promised cuts is actually specified in the bill. The rest depends on measures the government hasn't yet detailed. The tax and contribution hike would be about twice the revenue raised by the 2022 tax reform under former President Gustavo Petro, four years ago.

Who Gets Squeezed

Look at who pays. The bill eliminates the 5% value-added tax rate and moves most excluded and exempt goods to 19%. The income level at which wage earners start paying income tax drops from about $2,800 a month to $1,700. Payroll contributions apply to the entire wage, so employers will pay up to 7.5 percentage points more on an employee's whole salary once earnings pass two or three times the minimum wage — which, the analysis warns, may push them to hire workers as independent contractors. Opposition parties have called the VAT regressive. The government's answer is EfectIVA, a program that would partially or fully refund VAT to eligible low-income residents, with a monthly refund limit.

On the spending side, the bill halves the government's use of outside service contracts in 2027 and cuts the national wage bill by 20% in nominal terms in 2028. It would also hand the president extraordinary powers for six months to abolish or merge national agencies, under a plan nobody has specified.

Who Gets Protected

Now look at what's left alone. The diesel subsidy will cost 0.5% of GDP in 2027, about $3.3 billion. Cutting it requires no legislation, only higher regulated prices — yet the bill moves the other way, excluding diesel from VAT. Electricity subsidies stay untouched, even though about 80% of them go to households that aren't poor. The exemption for high pensions survives: a worker earning $1,900 a month would pay income tax, while a retiree with a monthly pension of about $6,300 would not.

The corporate tax rate falls from 35% to 31%. The wealth tax, which the president promised in his inaugural address to eliminate, only gets a higher threshold and a 2030 expiration date. Then there's RUGE, a incentive program for projects over $42 million: a 20% income tax rate for 16 years, an 8% final tax on dividends paid abroad, accelerated depreciation, and legal stability. Big capital gets sixteen years of certainty. The worker earning $1,900 a month gets a new tax bill.

The Reform Trap

The numbers behind the panic are real. The fiscal deficit exceeded 6% of GDP in four of the past six years, and projections point to a record 9.4% of GDP in 2027 without action. Net debt climbed from 47% of GDP in 2019 — seven years ago — to 60% this year. Interest payments swallow more than a quarter of tax revenues. In other words, a growing share of what people pay goes to creditors.

Now the bill goes to a Congress with a ticking clock. Ordinary sessions end December 16, about five weeks from now, and 16 provisions modify organic laws requiring an absolute majority in both houses. Government allies welcome the cuts and reject the tax hikes. Several senators from the conservative Centro Democrático, whose 47 members the government needs, oppose tax increases on the middle class. Nuevo Liberalismo opposes VAT increases on coffee, sugar and oils.

The analysis expects the spending cuts, the lower corporate rate and RUGE to survive, while the broader VAT and income tax bases — the parts that raise most of the new money — face stiff opposition. The pieces that favor investors are likeliest to pass; the pieces that hit consumers and wage earners are the ones being bargained over.