When Colombia’s congressional economic committee approved the 2015 budget on Wednesday, Finance Minister Mauricio Cardenas probably sighed relief after an intense and complicated campaign to see the proposal pass. The $108 billion budget will now be put before the plenary sessions of the house of representatives and senate.
After presenting Congress with one of the largest budget proposals in the country’s history, a flurry of opposition from all sides forced Finance Minister Mauricio Cardenas to go back to the drawing board and make concessions.
MORE: Budget blowback: Debate over Colombia’s 2015 budget proposal heats up in Congress
For starters, all of the money is not there. Inside the $108 billion proposal was a nearly $6.5 billion gap in funding, which the minister planned to finance through a taxation scheme aimed at wealthier Colombians. The tax plan would extend “patrimony” taxes on those making more than $500,000, as well as lower the threshold to those making $375,000.
Budget Sources of Funding
In response, right wing opposition forces launched a flurry of media and political campaigns to kill the proposal, describing in fantastical detail the increased corruption, diminished investment and general suffering of the middle-class that would result from the government’s overextended reach.
It was enough to force the minister to undo the lowering of the eligibility threshold, where it will remain at $500,000.
At the same time, left leaning politicians slammed the budget for not doing enough to make Colombia the “most educated country in Latin America by 2025,” one of the pillars of President Juan Manuel Santos’ administration.
Describing the educational fallout from young and rural populations, where “71% of primary and middle school students drop out, 37% of which are rural,” senator Claudia Lopez (Green Alliance) assailed the proposal for not going nearly far enough and instead favoring larger corporations with tax incentives.
Cardenas later revised education allocations to increase over $300 million its original amount.
In a seemingly final effort to satisfy mounting criticism, the minister cut budget operating and debt expenses by $1.5 billion, reshuffling the funds to increased investment into everything from infrastructure to childcare.
Budget after reshuffle
Investment Sector
All this back-and-forth uncertainty over budget allocations, combined with highly public controversy over the future of what government spending should look like, has forced financial markets and investors to increase their focus on Colombian fiscal policy more so than years before.
According to a recent survey of investors by Fedesarrollo, an economic think tank, there was a 12.7% increase since August of investors viewing fiscal policy as the number one most important factor in making investment decisions.
Moreover, government spending is becoming an increasingly important factor in overall economic growth for the near to medium term.
By the end of the year, public consumption and investment are both projected to have grown faster than the 2014 annual GDP growth rate of4.3%, and they will continue to be significant contributors towards GDP and investment until 2018.
As the government grows, spends more and prepares for a massive influx of people into the formal system from a potential peace deal with rebel group FARC, the government’s role in the Colombian the economy should continue to influence markets.
Government Investment, Spending and Consumption Data, 2014-2018
Demand Side
Supply Side
Sources
- Prospectiva Economica (Fedesarrollo)
- Comisiones económicas dan luz verde al presupuesto de 2015 (Caracol)
