What Jumps Out: Lumpy Stuff

Ministerio de Hacienda y Crédito Público Germán Ávila presented the tax reform this week, but before we delve in, there are two options on the ideological front. You either seek to improve Colombia’s appalling record on inequality, poverty, education, and social programs, or you prefer the status quo. The problem is that after years of corruption and mismanagement, the Colombian bank balance isn’t in any shape to write the checks needed to move the inequality needle – it needs to find extra resources. Please don’t fall into the trap that the local elite are trying to set by saying that somehow the GINI coefficient isn’t a fair reflection of Colombia’s brutal inequality.

Those resources are not coming from commodities. Despite oil production having increased since the days of Duque/Bayon, July exports from Departamento Administrativo Nacional de Estadística – DANE Colombia were again down 4.1% with commodities (-25%) and oil (17%) both lower.

There were some sensationalist headlines (Bloomberg around how much tax the rich will pay under the new reform however, it is far more nuanced than that. Consumption accounts for around 27% (of the $6 billion USD), but there are areas of pure common sense within that. Alcohol & tobacco are two areas proposed, as well as VAT on international tourists. Where the rich may get more nervous is that 24% of the reform is geared towards lowering evasion – Colombians are experts at hiding their funds overseas and/or hiring brilliant accountants. Other areas targeted are mining/energy (3%), gambling (6%), & fuel (10%).

It’s a many-headed snake, but just as Perseus took care of Medusa back in Greece, the Colombian Congress will take a sword to the tax reform, as well as the 2026 budget – much of the media debate will prove redundant. Let’s see what is left in a few weeks.

In terms of the overall fiscal picture, made worse every month by the above exports and booming domestic demand, plenty are saying that the key is to reduce government spending by 3-4%/GDP, which seems sensible. But is that in education, the fight against poverty, or perhaps by simply suspending some massive public infrastructure projects?. Whatever Gustavo Petro does, the ANDI – Asociación Nacional de Empresarios de Colombia and its peanut gallery members will still be moaning.

Was it a sailboat or a speedboat? Was it carrying drugs? Did the US act legally? Was it dispatched by Nicolás Maduro? Will Donald Trump continue to punch downwards until he finds a country that doesn’t bite back? Is Petro correct to speak of caution, given that Colombia shares a 4000 km land border with Venezuela? Simply a rabbit hole I’m going to avoid.

There was news elsewhere in brief.

The current account deficit widened to 2.5%/GDP in Q2.

Vehicle sales in August hit 21,285, up 29% YoY.

The Colombian birthrate fell again in 2024 by 13.7% – no extinction fear yet, but growth is slowing.

A lumpy Friday to say the least!

Regards.

Roops.

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Roulette wheel. Photo credit: stux from Pixabay.