Informal employment in Colombia, photo El Colombiano
Colombian President Santos claimed on Sunday that his government’s proposed tax reforms will help to improve equality and increase formal employment.
Speaking at the U Party General Assembly, Santos sought to continue to position himself firmly in the political centre ground as a proponent of “third way” politics, underlining his thesis of a free market but with a state that has a “hand that is firm and decisive when necessary.”
He boasted his government’s record on employment, which he claims has created two million jobs during his 26 months in office, and has led to a reduction in poverty and kept inflation rates low.
On the tax reforms, Santos claimed the current system “perpetuated inequality” and that it was “unfair” that those who earned more paid less. The reforms propose that those earning a salary of less than 3.35 million pesos – around US $1,800 – will pay no income tax.
Santos said the reforms will benefit those earning up to 5.150 million pesos, which he stated made up the “99% of people working.” The reforms also include the simplification of VAT rates and the introduction of an 8% tax on corporate profits which will offset this tax cut to ensure that government funding for health, the National Learning Service (SENA) and the Institute of Family Welfare (ICBF) is not affected.
The government hopes that the reforms will encourage firms to take more staff on the books and increase the level of formal employment, combatting the informal sector which in Colombia is – according to research carried out by CEDLAS and the World Bank in 2011 – among highest in Latin America.
Public reaction to the proposed reforms in the business community has so far been positive. The President of the Colombia National Association of Foreign Trade (Analdex) Javier Diaz called the reforms “good stuff”, The National Business Association of Colombia (ANDI) president, Luis Carlos Villegas, claimed that the reforms “include many principles that the Colombian private sector has been pushing for decades” and backed the government’s estimates on the amount of jobs the reforms will create. Earlier in the year, the private sector had expressed concern at the proposals which Santos said “would make the rich squeal”.
Senator Jorge Enrique Robledo of opposition party the Polo Democratic Alternative alleged though that President Santos was “lying to the country” in his speech about the benefits of the reforms to the middle and class and poor. He said the proposals were “regressive” and were of the same neoliberal type that was currently “suffocating Greece and Spain”.
Finance Minister Mauricio Cardenas Santamaria earlier this month presented the reforms to Congress and the government is comittmed to fast tracking their progress through the legislature.
