Fast track administration
President Noboa has sent four emergency bills to congress since November, when he took office. The first one, containing a mild tax reform that according to the government might help raise $700 million this year, was approved by the Assembly with few changes. The second, aimed at improving the situation of the electricity sector, also achieved legislative consensus and passed rapidly.
The fourth bill, related to changes to the penal law to improve control of corruption, is still under debate. And the third economic bill suffered its setbacks, but the government still holds an ace in its hand on this one.
In fact, the proposal to permanently raise the VAT from 12% to 15% to increase tax revenues by $1.3 billion was opposed by the Social Christians and the Correistas, who came up with their own proposals to tax private businesses, and private banks and cooperatives, respectively. These proposals received a favorable vote from the majority of legislators and were accepted in the partial presidential veto that insisted on raising the VAT tax, this time to 13% permanently and to 15% as needed.
The veto was neither approved nor disapproved by the Assembly, and if its members do not contest it by March 6, it will be published as it is in the official registry. These three reforms could help the government raise $925 million.
Together with the above, an increase of the capital outflow tax from the current 3.5% to the previous 5% implies additional tax collections of $250 million, summing close to $1.8 billion of extra revenues this year. It remains to be seen if the presidential announcement to eliminate the subsidy of the gasolines Extra and Eco Pais is implemented. This could add another $500 million.
All of the above reforms will bring an immediate increase in revenues, but not all of them are permanent, as the structural fiscal problem and the fight against organized crime require. Tax collections would drop by approximately $500 million when the temporary taxes and the tax amnesty approved in the above-mentioned first urgent bill end their term. Thus, it is imperative to design an economic plan containing permanent reforms to increase revenue as well as reduce expenditures, subsidies and the size of the state if the objective is to get another round of help from the IMF and multilateral institutions.
So far, Noboa’s administration has the people’s applause for its rapid and evident achievements to contain organized crime. Even old-time politicians have recognized his assets as a statesman and his expeditious way of dealing with urgent problems. He still needs training in diplomacy and geopolitical strategy though, as evidenced by the recent impasse with Russia over the destiny of alleged old armaments.
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