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Gustavo Petro's economic proposals: energy transition and tax reform

2022-06-21T17:18:45.382Z


The leftist president promises to overcome the extractivist model to advance to a productive economy


Gustavo Petro has promised profound changes in the Colombian economic model during the long campaign that came to an end this Sunday.

The one who would be the first left-wing president in the country's history proposes structural reforms to correct inequalities and seeks a more environmentally friendly growth.

His ideas contemplate a tax reform that ends unnecessary exemptions and public spending to meet social needs.

The energy transition to face the climate change emergency, which includes a proposal to stop oil exploration, has been one of its main banners.

“This implies moving towards a productive economy based on respect for nature, leaving behind the exclusive dependence on the extractivist model and democratizing the use of clean energy to generate national capacities that allow us to face the effects of climate change and thereby contribute to overcoming the global environmental crisis that puts the life and survival of the human species at stake”, reads its government program.

Accelerating this transition to cleaner energy comes up against the challenge of finding sources of public resources to replace mining-energy.

For this Gustavo Petro has mentioned, among others,

Oil is Colombia's main export source, and the hydrocarbon sector contributes approximately 3.3% of gross domestic product (GDP).

The country is the Latin American economy that will grow the most this year, according to the Organization for Economic Cooperation and Development (OECD), driven, in large part, by the rise in oil prices in international markets.

"Petro has committed to breaking with some key elements of Colombia's economic policy, in particular by ending dependence on oil by stopping exploration and focusing on renewable energy in an effort to diversify the economy," says the analysis of the credit risk rating company Fitch Ratings published this Monday.

The candidate for the Historical Pact proposes to move from an extractivist economy to what he qualifies as a productive economy with a retraining plan for workers in highly polluting and obsolete industries.

In terms of international trade, he has a protectionist vision that includes favoring national industry, increasing tariffs and revising free trade agreements.

He proposes that Colombians feed themselves with the same products they generate, better distribute the land and that it be exploited by farmers.

In the fiscal field, Petro proposes a tax reform to increase revenues by 5% of GDP, half for new spending and half for deficit reduction.

The candidate has proposed increasing collection without increasing taxes on companies, but reducing their exemptions, which involves the gradual dismantling of unjustified tax benefits and that introduce distortions to competition between economic agents.

“Petro's platform includes increased social spending paid for by tax increases,” notes Fitch.

“From the fiscal point of view, it is a tremendously deficit program.

It not only expands state spending by making the government the employer of last resort;

does not commit to reduce but rather to increase the subsidies for Solidarity Income, for the Elderly and others,

The program of the leftist coalition promotes the recognition of the informal economy and proposes a leading role for the State in creating employment for those who cannot find it.

Regarding pensions, it proposes the creation of a mandatory contributory pillar administered by the State for more than 90% of formal workers.

In its analysis, Fitch points out that the most radical proposals could be diluted by the lack of clear majorities in Congress.

“The reforms that involve bills and that require parliamentary debate will be built to the extent that we build concertation scenarios.

They will not be imposed reforms, but debated," Petro explained this week in an interview with EL PAÍS.

In that talk he pointed out that the goal of decarbonizing the economy will take a decade, so his eventual mandate will only take the first steps on that path.

As is often the case when a country turns to the left in Latin America, there is also great expectation as to who would hold the reins of the economy.

On the eve of the first round, Petro surprised by announcing that he would like to entrust the management to José Antonio Ocampo, a renowned former finance minister, professor at Columbia University and former executive secretary of the United Nations arm for the development of Latin America and the Caribbean (ECLAC).

Although his vision coincides with Petro on the need to change the extractivist model, at that moment he reminded him that he supported Sergio Fajardo, of whom he was a close advisor.

With the former governor of Antioquia out of the race, that ceased to be an impediment and they have already maintained rapprochement.

"There is a very important team of economists that has been built throughout this campaign," Petro told EL PAÍS this week.

“The initial team began with Ricardo Bonilla and now, in the growth process, we have spoken with José Antonio Ocampo, Rudolf Hommes, who was also Minister of Finance, and one of the best economists in the country, Alejandro Gaviria, has joined.

It is a very strong team, with very different schools of economic thought, a great power in public economic policy”.

In the first debates it was precisely Alejandro Gaviria, then as a pre-candidate of the center coalition, who raised some of the objections to Petro's program.

After the first round, the former Minister of Health announced that he intended to vote for the candidate from the left-wing bloc.

In a panoramic sense, Gaviria considers that Petro's economic proposal is correct in the diagnosis.

“Colombia needs a productive transformation, change its export offer, insert itself in a different way in global markets, take into account environmental issues.

Economic growth has to be more sustainable and more inclusive”, Gaviria told this newspaper.

“In these general objectives we would all agree.

Already in specific issues, in how to implement that, there were differences”.

Gaviria raises some specific concerns about whether, for example, on the subject of pensions, the resources of the contributions that would go to the public system can be fully spent to finance current State spending.

Also about food tariffs in an inflationary context, or about the speed of the energy transition and productive transformation.

“I am optimistic that an agreement can be reasonably reached on some of these issues,” he told EL PAÍS.

Ocampo, in a talk on the podcast A Fondo, has also been willing to work with the president-elect, although without specifying his role, in the event that Petro prevails in the second round this Sunday.

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Source: elparis

All news articles on 2022-06-21

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