Editor’s note: Jorge G. Castañeda is a CNN contributor. He was Mexico’s Secretary of Foreign Affairs from 2000 to 2003. He is currently a professor at New York University and his most recent book, “America Through Foreign Eyes,” was published by Oxford University Press in 2020.
(CNN Spanish) – All states face resistance when they try to raise taxes. Sometimes, despite the reluctance of all societies to pay them, governments succeed, not without wear and tear. Other times they fail outright, not so much because of the technical deficiencies of their proposal, but because of the lack of political capital or legitimacy, or an inadequate chronology, or a society that is too incredulous, cynical or distrustful. All this – and much more – has happened to the Government of President Iván Duque in Colombia. It is a near-manual case of how the best government intentions can lead to the worst outcomes.
The pandemic cost a lot in lives, injuries, lost school years, and money – vast amounts of resources. Some countries in the world and in Latin America injected huge sums into their economies to alleviate the effects of the closures due to the pandemic. Others spent less, decreased more, and suffered greater economic and social consequences.
Colombia is in an intermediate range. Its economy fell 6.8% in 2020: less than Mexico, Argentina and Peru, but more than Brazil, Chile or the United States. Their fiscal effort (a deficit of almost 8% of GDP) was also greater than that of Mexico and Chile, but lower than that of Brazil or Peru.
The recovery expectation for this year was not bad; an almost complete return to the levels of 2019 by the end of this year. Health outcomes are also in a medium position among the countries of the region. It suffered fewer deaths per inhabitant than Mexico, Brazil and Peru, although more than Chile and Uruguay. In other words, the national government was not the best in the region, but it was not the worst either. However, the damage was dramatic: 3.6 million people fell into extreme poverty, and more than half a million businesses closed their doors.
In view of the fiscal gap caused by spending during 2020 and the consequent deterioration in the credit position of the Colombian state, Duque decided to launch a significant tax reform in early April. It was an effort equivalent to two points of GDP, something considerable in a country with a very low tax collection, one of the smallest in the OECD (about 19.7% of GDP).
Duque sought to extend the Value Added Tax (VAT) to a significant number of products until then exempted, especially some food, public services, energy and home gas, and reduce the amount of income from which the Tax on Income (ISLR). It also sought to raise that tax on the wealthiest taxpayers, temporarily establish a tax on wealth, and consolidate something like a universal basic income (UBI).
In other words, Duque proposed an important tax reform, but in my opinion not excessive, driven by sensible reasons, balanced between its progressive (IBU, ISLR) and regressive (VAT) aspects, including a VAT refund to the poorest households . But it did not have some factors that quickly condemned it to failure: from the beginning, 80% of Colombians disapproved.
This first tax reform in pandemic Latin America (along with a provisional estate tax in Argentina) was also the third of the Government of Duque; it rained on wet. It was proposed against the background of the student mobilizations, and in general of 2019, which were poorly contained by the Government. It was launched by a president just over a year after the end of his term, in a country where there is no longer re-election.
In theory, this last factor should not necessarily be negative. A president who is already on his way out does not have to worry about the electoral consequences of his decisions, except if he wants to protect a successor to his party, who can always separate himself from the predecessor. There was a certain logic in Duque’s behavior, and in any case the pandemic and the state of the economy did not allow him much margin.
The fact is that the reform aroused a generalized protest in the streets and in the unions, in Congress and in the media, among students and pensioners. As with the demonstrations at the end of 2019 in Chile and Colombia, the two best police officers in Latin America – Carabineros and the National Police – revealed themselves incapable of controlling without repressing, of repressing without killing and outraging, of containing without brutality. Their training and equipment were highly defective for situations such as those experienced by those countries, then and now. When the police were overwhelmed, Duque ordered the Army to intervene, aggravating an already serious situation.
Soon, the protests stopped being directed against the reform – withdrawn by Duque at the end of April – and focused on condemning the repression, fighting inequality and demanding better management of the pandemic. The embattled president proposed a dialogue with all sectors; some have accepted, others are still reluctant. While the mobilizations continue, repressive brutality persists and the death toll grows, reaching unknown and intolerable numbers for street protests.
A little over a year before the presidential elections, the crisis seems to give Gustavo Petro, the left-wing candidate in the last election – he won 42% of the vote – an advantage difficult to overcome, who heads the Colombia Humana coalition. In a traditionally conservative country, the fact that a leftist candidate – who in my opinion is almost Chavista – could reach the presidency illustrates the depth of the Colombian crisis and the magnitude of Duque’s disaster. However, behind these temporary consequences, something deeper affects Colombia and many other Latin American countries.
There is a growing disconnect between represented and representatives, between societies and political classes, between expectations and the material conditions for their realization. The protests in Chile inaugurated the expression of this disconnection, in the richest country in the region and the one that had achieved the greatest economic progress during the last quarter century. People want more, but do not agree to pay the cost of the inevitable mechanisms to have more. The rulers do not reach basic agreements in favor of reforms – tax, education, health, security, institutions – and the citizens do not find rulers who “listen to them.” But if they listened to them, they would not be able to govern, and if they governed responsibly, the people would shout as in Argentina in 2002: “Let them all go!”
Perhaps the Chilean solution – a constituent assembly drafting a new constitution – is useful for other countries, although Colombia did so in 1991. Another option – deliberative democracy, as in Ireland, for abortion – could also help to square the circle. In any case, what the Colombian debacle shows is that what is often called proactive governance in Latin America has vanished. It can be managed, not reformed. But unreformed, the pitiful status quo Latin American will be perpetuated.