NORTHAMPTON, Massachusetts, May 11 (Reuters Breakingviews) - When the pandemic hit Colombia in March 2020, and the country faced its first one-month lockdown, President Ivan Duque announced a one-time cash transfer of $40 – equivalent to 12% of the minimum monthly wage. None of the members of my family received such a transfer. Classified as a low-income household, living in a rural area in the southwest of the country, my parents still wonder why, despite the government’s announcement of a subsidy, nothing arrived. Fortunately, my parents have me. I send remittances with my part-time job at Smith College, but not all rural families can count on a relative in the United States. The common understanding is that no country can eradicate poverty or achieve zero inequality. But prioritizing the reduction of both is an especially urgent matter in Colombia.
The Covid-19 pandemic has caused the greatest economic recession in Colombia in at least a generation. While inequality of wealth is the highest among members of the Organisation for Economic Co-operation and Development, the United Nations also reported that the poverty rate in Colombia is now the highest in South America. The Economic Commission for Latin America and the Caribbean reported that 37.5% of Colombians lived below the poverty line at the end of 2020. Poverty increased significantly while the country’s three richest men owned more than 10% of the country’s GDP. With some 51 million people, between 18.9 million and 23.9 million Colombians lived on less than $91 a month in 2020. Of these, 15 million missed one meal a day and the remaining were near starvation.
The Colombian government should reform the tax system and tax the rich more heavily. In 2018, while the richest 20% of the population received 55% of the country’s income, 80% of the population scrambled over the remainder. The earnings of the richest 20% contribute little to the economy, experts say, because they find tax havens overseas, or invest in stocks abroad, none of which stimulates the domestic economy. Sales- and wealth-tax evasion cost some $12 billion in lost revenue to the government in 2019, according to Colombia’s tax agency, DIAN. With additional tax revenue, the government could increase the unemployment subsidies, which, in 2016, when the program was introduced, amounted to a payment of only about $56 monthly. The problem with small subsidies like these is that they contribute to the increase of Colombia’s informal economy, where even more tax revenue is lost.
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In addition, the value added tax in Colombia is 19%, the highest in Latin America. The VAT widens inequality because it taxes the poor unfairly. It also shrinks government revenue due to tax exemptions: imports like salmon get a pass, while daily staples like coffee and soap are taxed. Just this year, the government approved a VAT compensation bill that now needs full and fair implementation. Its major challenge is to reimburse the poor through the “Sisbén”, a database of low-income families, which has been repeatedly taken advantage of by unqualified individuals.
In fact, the Colombian government recently introduced a $6.8 billion tax reform to reduce poverty and stimulate the economy, while at the same time heavily taxing individuals and businesses. While giving cash transfers at the beginning of the pandemic to help the poor, the government made the fiscal deficit bigger and was aiming to get that money back from the same Colombians it promised to help.
The proposed tax reform was a mistake and showed just how out of touch President Duque is with the people. The regressive proposal hurt working and middle-class households. That’s why on April 28 thousands of Colombians began protesting the reform. Violent clashes between the National Police Riot Control and citizens forced Duque to withdraw the measures and led to Finance Minister Alberto Carrasquilla’s resignation. However, protests in Colombia continue amid general discontent with the government and well-documented violations of human rights.
Unless the government reforms the tax system progressively, finds an effective path to compensate the poor from the value added taxes, and fixes the cash transfer subsidies, poor Colombians will have a hard time accessing economic resources. Despite the implementation of social policies that reduced absolute poverty in previous years, the Colombian government has been unable to design an efficient plan against poverty during the pandemic.
Consequently, the country has reversed much of the progress it achieved in the past, when it was one of the fastest-growing economies in Latin America. On the other hand, the country has never been able to halt income inequality, which during the pandemic has been exacerbated. Seeing the failure of my government, as a Colombian myself, I feel a heavy responsibility to provide for my family now more than ever. But with ill-equipped policies and out-of-touch leadership, I fear the country is facing a spiral of misery.
- Veronica Uribe-Kessler is an Ada Comstock Scholar at Smith College and first-generation college student from Colombia.
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