The president said he was happy because “we finally managed to come to an agreement as a country”. Valentina Centeno, from the government party, celebrated that the Assembly is achieving the long-awaited manageability. But not every deal is good. The bill does not contain any reforms to address the main problems affecting the Ecuadorian economy.

Last week, Alberto Dahik pointed out that this law does nothing to solve the brutal bleeding of state treasury funds in subsidies. The state allocated an incredible 7,463 million dollars for subsidies this year. Of this, 42% was intended for subsidizing IESS pensions, and 36% for subsidizing fuel. Jaime Carrera, of the Fiscal Policy Observatory, estimates that the 2023 fiscal deficit will end up at about $6,000 million, so these two items alone account for an amount equivalent to 96% of the deficit ($5,776 million). Both subsidies are regressive and ineffective.

Tax reform: free zone

The eternal pursuit of targeted fuel subsidies eludes the simplest and fairest solution: topping up human development bonuses for the estimated impact on those who are supposedly most vulnerable. We know that the subsidy mainly benefits the richest fifths of the population. Furthermore, if the government intends to get additional loans from multilaterals to close the financing gap, it must know that the existence of these subsidies is blocking them because they see them as a policy that opposes their campaign to fight climate change.

During the last decade (2014-2023), the country allocated 22,372 million dollars for fuel subsidies. Although they seem to be a sacred cow for certain violent groups that refuse to act within the constitutional and democratic order, it is up to democratic governments to manage the resources entrusted to them by society in the best possible way, instead of continuing to actively or passively support their waste.

Nobody’s popular advice

During the last decade, the state allocated 16,115 million dollars to subsidize the pensions of a privileged group of individuals who make up the formal sector of the labor market. According to the latest employment data, only 35.5% of Ecuadorian workers have adequate work, 60.40% have inadequate work, and 3.7% are unemployed. So why then does the government, which should serve everyone, dedicate more and more resources to subsidize the three out of every ten Ecuadorians who have an official job.

The system does not establish a relationship between what is paid in and what pensioners receive, which discourages saving. Employers see this as a tax on employment, undermining job creation. Workers are prisoners of a state monopoly that offers them low-quality services.

These two subsidies are the main fiscal bombs, although they are not the only ones. The two of us have spent the equivalent of 51% of the public debt in the last decade. Parliament celebrates agreeing on a law that does not address these or other problems affecting the economy, such as the lack of an internationalized financial system and a flexible labor market. (OR)