Decentralization dream could become a fiscal nightmare
Colombian Congress has a relatively good track record in fiscal prudence: an insane number of tax reforms have been approved over the last three decades; two fiscal rules and a fiscal responsibility law have been enacted; and fiscal sustainability was enshrined in the Constitution in 2011. There are dark spots too. One is that Congress is always very open to considering more spending. And Colombian tax code can hardly be considered a paragon of best practices.
The result of these countervailing forces has been net positive on the fiscal front, in terms of Congress' willingness to keep fiscal sustainability as a key tenet of public policy. But the Congress Colombians elected in 2022, full of new faces, appears willing to move away from this long-standing tradition. The pension reform approved a few months ago, with a substantial net present value cost, clearly indicates this new congressional mindset. The willingness to disregard the warnings issued by CARF regarding the 2024 and 2025 budgets also points in this direction.
On October 21st, Interior Minister Juan Fernando Cristo published an op-ed in El Tiempo stating that the constitutional amendment to increase the SGP should be considered a key element of the Gustavo Petro administration’s National Agreement initiative. Cristo argued that to make this increase in the SGP fiscally viable, the spending responsibilities of subnational governments should be expanded. An additional bill presented to Congress will have limited time to be approved (apparently, six months) once the constitutional amendment goes through and, so far, no one has said anything about the additional spending responsibilities for subnational governments. Cristo’s op-ed crystalized a feud among ministries, as the FinMin and the National Planning Department (NPD) are against the constitutional amendment initiative. Who will win this confrontation? Cristo, who has presidential aspirations, or FinMin and NPD, with their call to fiscal prudence? Since Congress seems happy with the current version, we wondered whose side Petro would favor. On October 28th, not surprisingly, he tweeted from his X account that he’s not on the FinMin/DNP side.
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