An ambitious effort to expand Colombia’s social safety net hit a snag on April 28 when thousands took to the streets to protest the government’s plan to pay for it.
The government’s latest attempt at tax reform would help expand and make permanent a basic income support program introduced during the pandemic, known as Ingreso Solidario. The proposal, however, would raise taxes on many Colombians to fill a $4.8 billion fiscal hole – a tough sell in tough times.
In addition to expanding value-added taxes and reducing income tax exemptions, the reform would lower tax thresholds for middle-income Colombians already struggling with the pandemic’s economic consequences.
“They want the middle class to remedy the country’s deficit,” Maribel Martinez, a manager at a cleaning product factory in Bogotá, told AQ. “And that is difficult for us.”
Still, experts say that the expansion of Ingreso Solidario’s emergency support payments would be a landmark moment in a country that has long lagged behind its regional counterparts in implementing social protection programs. The program, begun in April 2020, has already provided three million low-income Colombians with 13 monthly payments of about $43 (160,000 Colombian pesos) each since April 2020.
“I could not have imagined this sort of reform before COVID,” said Édgar Picón, technical director at Prosperidad Social, the entity of the Colombian government that heads the Sector of Social Inclusion and Reconciliation. “It’s the first time the government has realized that we can expand social programs.”
The program’s rollout, to be sure, has been small compared to other emergency payment schemes in the region. Argentina and Brazil, for example, were able to draw on longstanding cash transfer programs AUH (Asignación Universal por Hijo) and Bolsa Família, integrating newly eligible recipients into existing frameworks, a move that allowed them to reach an additional 9 million Argentines and 46.7 million Brazilians in 2020. Eligibility for Ingreso Solidario, on the other hand, was limited to 3 million people deemed eligible by Colombia’s national registry, the SISBEN.
“Compared to other countries in the region, the coverage that Ingreso Solidario offers is extremely weak,” Merike Blofield, the director of the GIGA Institute for Latin American Studies in Hamburg told AQ. “For the 3 million people that got it, it certainly made a difference. But there were five times as many households that needed it.”
Colombia’s initial response was criticized for being too limited in breadth, but now President Iván Duque wants to expand the program to reach 4.7 million vulnerable households – and make it permanent.
“It’s remarkable,” said Picón. “This is a right-wing government that has created the biggest expansion in the social protection system in the history of Colombia.”
The government is far from alone in pressing for reforms. In fact, opposition parties have sent multiple letters to the Duque government petitioning for more comprehensive basic income programs. New spending proposals from opposition parties have flooded Congress during the pandemic, some of which would do away with existing programs and turn Ingreso Solidario into a true universal income scheme, according to David Castrillón, a researcher and professor at the Universidad Externado de Colombia.
At its most expansive, the program would only cover roughly 10% of the population, but it will prove difficult to finance, nonetheless. If Wednesday’s protests are any indication, the pandemic-era surge in appetites for new social spending have not been matched by a tolerance for higher taxation, even though Colombia’s tax burden is lower than all 37 members of the OECD except Mexico. The government, meanwhile, will need all the revenue it can get if it hopes to maintain its investment grade credit ratings – the deficit will balloon to 8.6% of GDP this year if the reform is not passed, according to the Finance Ministry.
For now, the government seems game to negotiate. “We’re looking for consensus, we’re looking for ways everyone can do a little more to cover the gap, to have peace of mind that our country can pay its debt and that our vulnerable population isn’t going to suffer because we can’t pay for social programs,” Vice Finance Minister Juan Alberto Londoño, said on local radio station Caracol.
But with the Duque government a year away from the end of its mandate, and with Ingreso Solidario payments currently set to end in June, time is of the essence.
According to Picón, Ingreso Solidario’s subsidies currently make up for half of their recipients’ current household income. If the reform stalls over tax issues, many more may fall into poverty. “For the first time all political sides agree they need to do something,” he said.
The question is how.
Tags: Basic income, Colombia, Colombia protests, The Fiscal Challenge