This Monday, the Committee for Economic Development began processing the Law on Economic Efficiency and Encouraging Employment, which was urgently sent to the Assembly by President Daniel Noboa. On that topic, editor weekly analysis, Alberto Acosta Burneo explains the limitations and successes of the proposal. It opens the debate on the possibility that Correismo seeks to impose taxes on certain sectors with political rather than technical criteria. For Acosta, this law only buys time to carry out outstanding adjustment tasks, since this reform “doesn’t even come close” to solving the fiscal problems.

What are the issues that should be analyzed regarding President Noboa’s urgent proposal?

The reform has three parts: the tax part, free zones and public-private alliances. In the tax part, it is important to understand what is happening. Since October, there has been a 2.7% decrease in collection compared to the previous year. The projected tax cut for 2024 is $900 million. This is because the provisional contributions stop, the ISD rate has been reduced to 2% and there is also bound to be a reduction due to the economic slowdown. The reform suggests it will generate about $830 million net, so the reform would more or less offset the decline next year. That doesn’t help close the $5 billion deficit, but at least it helps keep the deficit from growing.

Is the reform failing?

By 2025, the deficit gap will open. The reform proposes only extraordinary income from the forgiveness of interest and penalties, that is its main measure. By 2025, there will be no more. In any case, the government keeps its promise not to raise taxes, but does not solve fiscal issues. The government is buying a year, it is buying time to complete its tasks with this reform. In this sense, it would be serious if it did not perform the tasks of correcting fiscal problems such as targeting subsidies and adjusting spending. The fact is that current consumption is growing year by year. In the last one, it increased by 1.4 billion dollars.

Should taxes be raised?

Voices are being heard from Correismo proposing a tax increase. For example, Rafael Correa said that we need to collect more taxes on banking because it is the activity that has had the highest profitability. This is a lie, because banking is not the most profitable. The most profitable sector is administrative and business services (35.3%), followed by mines and quarries (24.7%), public administration (18.4%) and telecommunications (15.7%). Banking just appears in 10th place in the ranking with 12.3% profitability. Therefore, it is not excluded that changes to the proposed law will be found in the Assembly. It is not correct, based on political arguments, to increase taxes. In a slowing economy, it is not logical to raise taxes because that would take away the momentum.

But then it could be that the president sent the bill without a tax increase, believing that his allies would deliver the increases.

I have that doubt. It could happen that, on the initiative of the allies, changes are made to the original government proposal. But we have to take into account that there are many sectors that have not yet recovered from the recession caused by COVID. A tax increase would take away their momentum. Among them, for example, is the wealth tax.

But a wealth tax could tax the wealthiest sectors, wouldn’t that at least be progressive?

A wealth tax is absolutely inconvenient because it is a penalty for investing. Assets grow when they are invested, so the bigger the asset, the bigger the penalty.

Another issue that this reform calls for is a 3% advance payment for large taxpayers. Any objections to this?

The problem with 3% is that it’s an average. The result was that 4% is paid on average, so if we put a 3% down payment, it does not create a big problem. But the problem is companies that don’t pay that, but less. Well, those companies will have to spread those resources throughout the year. This means reducing working capital, and then being able to recover it. This will especially affect the export sectors.

It is understood that these measures are not the best, but there are not many options either.

It would be better if they tried to reduce spending, if they managed to stop growth, that would be progress. Well, as the economy grows, in relative terms consumption would decrease. Even better, if they stop having useless expenses. Ecuador reaches debt limits, the market is closed, President Nobo has taken it upon himself to scare investors with his statements. Tax increases come at a cost in economic growth. The solution will come in optimizing costs and focusing subsidies.

Perhaps the autochthonous sector, led by Leonid Iza, is starting to threaten strikes precisely because of the issue of subsidies?

The government showed us only one of its documents: the document on tax reform, and in it there is no increase in taxes, and it managed to keep the collection down in 2024. There is also the issue of APP and free zones, both positive. We don’t know the other letters yet. We only know that these measures do not even come close to covering the fiscal deficit. We have more risk with the El Niño issue, ITT would stop receiving $778 million in 2024. It is possible that Iza’s statements were made because she anticipates that there will be some type of these measures.