Interview: Mauricio Cárdenas

What strategies will the governent use to cope with informality in the economy and tax evasion?

MAURICIO CÁRDENAS: Although we still face great challenges in reducing tax evasion and economic informality, we have reasons to be optimistic. From 2012 onwards, the repeal of taxes on company payrolls considerably reduced informality, and the new jobs which this created are well within the legal framework. Regarding tax evasion, we have made in-roads with the integration of 500,000 new taxpayers into the tax base, which jumped from 1.4m to 1.9m individuals. In this way, efficiency is also improved because it gives us tighter supervision over income tax. In 2015, in addition to the extra tax revenues from individuals, the administration is aiming to raise another $2.5bn simply by controlling tax evasion.

How will the government’s tax reforms impact inflows of foreign direct investment (FDI)?

CÁRDENAS: In December 2014, Congress approved a tax reform that effectively increased taxes for companies. What we are forecasting for the next four years – and has already been approved by law – is the dismantlement of the wealth tax and its substitution with a tax based on profits. Our primary consideration was to provide crystal clear rules for the private sector to ensure a certain amount of state income through higher compliance under the tax reform. This is a very important change, as Colombia will see its income reduced due to the recent fall in oil prices.

This reform, in anticipation of the lower revenues expected from oil, slightly increased the tax burden. Nevertheless, we are still a highly competitive country, with a good growth dynamic and attractive investment conditions. We are certain that foreign investors will maintain their confidence in the country based on its fiscal stability. In an illustration of this, in early January 2015 Colombia raised $2.5bn in a 30-year bond issue. This is remarkable because it means that, even though the prices of commodities have dramatically dropped, investors’ confidence in the Colombian economy has not been affected.

What social and economic benefits has the high level of tax discipline brought?

CÁRDENAS: The fiscal discipline we have practiced has allowed us to improve our debt ratings, reduce the cost of financing and carry out productive projects that are considered viable from a financial standpoint. These combined factors have helped to position Colombia’s investment rate among the highest in Latin America, around 30% of GDP, creating new employment and growth. Colombian citizens also benefit because there are more companies investing, generating jobs and improving purchasing power. Fiscal discipline has produced tangible results. This is why we consider it an immovable pillar in our model of economic management.

How is the country’s current fiscal system reducing the income disparity between Colombia and more developed countries?

CÁRDENAS: Thanks to its disciplined fiscal system and responsible monetary policy for controlling inflation, Colombia has been growing at a much faster rate than OECD countries. If Colombia were a member now, it would have the highest growth rate of all OECD countries, as we are growing four times faster than any of the current members. Although the difference is still significant, Colombia is achieving its goal of bridging the gap between and high-income countries. Colombia’s per capita income is $8300, compared to a $20,000 average for the OECD. If it can maintain its growth rate at the current level, we estimate that by 2026 Colombia will achieve similar per capita income. Moreover if the current peace process is successful, we will be able to add another one or two percentage points of GDP growth per year.