Contradictions in the Assembly: “They question the proforma and ask for more resources but then they annul the law that generates more income”

With the announcement made yesterday by the Minister of Economy and Finance, Pablo Arosemena, that the Government will veto the Organic Law Repealing the Organic Decree-Law for Economic Development and Fiscal Sustainability after the COVID-19 Pandemic, they are still in force, at less for one more year, all the articles of the law. Although the argument of the 100 assembly members who approved the repeal of the law was supposedly to lower the pressure on taxes that were affecting the middle class, this will not be effective immediately.

It is that in accordance with article 138 of the law, if the Government totally vetoes a law, the Assembly will not be able to deal with it but in one year. The law that the Government will veto was approved last night by the Assembly and this annulled the tax reform that came into effect by the Ministry of Law in November 2021. Said tax reform is key to ordering public finances and therefore, several Analysts had rejected the possible repeal, even calling it “economic terrorism” by the proposing assembly members.

Several analysts interpret the performance of the Assembly as self-contradictory, because on the one hand, in the early hours of the afternoon, they observed the budget statement that the Executive had sent and criticized it because it did not provide enough resources for education, health, universities, women, security, and many other sectors; but on the other hand, they have no objection to leaving the treasury without permanent resources.

For Jaime Carrera, executive secretary of the Fiscal Policy Observatory (OPF), the argument that the law taxed the middle class is, at the end of the day, an issue that is taken as a political flag in view of the next sectional elections for mayors and prefects, which will take place on February 5, 2023.

He also considers that the economic analysis from the Assembly is precarious, medieval and anti-technical, with little rigor and that they do not even understand how public accounts are financed: “It is totally contradictory to question the pro forma and ask for more income and on the other to oppose laws that generate income,” he says. The Economic Development Law established a higher income tax burden for those who earn more than $2,000 a month and also imposed a contribution to wealth for two years, 2022 and 2023, on companies with assets greater than $5 million and on natural persons for one year (2022) if they had assets of $1 million or $2 million if they were a conjugal partnership.

Although at the moment there would be no obvious economic affectation for the country, it will affect the image, since a message of tax and fiscal instability is given, this is not a good scenario to attract investment, says Carrera.

Meanwhile, if in one year, for example in December 2023, the assembly members resume the process and veto the law, then said regulation will be out of force, with the economic consequences, above all due to the lack of income from the income tax. personal income that had already been achieved.

Napoleón Santamaría, president of the Corporation for Ecuadorian Fiscal Transparency (Cotfe), describes the assembly members as “neanderthals” and assures that they are playing with 71% of the resources of the treasury, which are the tributaries. He explains that what they have done is due to a political and irresponsible attitude, which does not only seek to make the government uncomfortable, but is a destabilizing attitude in the future. He agrees that the assembly members in front of the proforma are the first to ask for more resources, but then they annul the law that generates more income.

For Santamaría, the tax issue remains in chaos after the repeal decision, since in the tax area there are some Constitutional Court rulings that declare various parts of the law unconstitutional, in addition the green tax issue was declared unconstitutional. If the National Assembly ratifies the repeal, the Government has no other way than to make a new reform. In this sense, the logical and responsible path would have been for the Assembly to speak with the Executive to generate a new tax law for 2023 that would accept the judgments of the Court and, at that time, take advantage of it to improve the tax law as necessary. . The current confrontational scenario, on the other hand, scares away potential investors, both national and foreign. (YO)