Colombia’s government presents “Economic Rescue Bill”

Colombia’s Economic Rescue Bill combines spending cuts with new revenue measures. Its stated aim is to reduce government costs and increase tax collection. The proposal matters because it could reshape public institutions, household prices, government employment, and corporate taxation at the same time.

On spending, the bill gives President Abelardo de la Espriella authority to abolish, merge, or reorganize ministries and other public bodies. It also mandates a 20% salary reduction for State employees, excluding security forces, and cuts half the costs of temporary contracts. On revenue, it proposes a 19% sales tax on products including cocoa, coffee, sugar, and fruits.

The bill also raises taxes on gasoline, liquor, and cigarettes, while seeking lower corporate income tax rates. Most consumer tax increases would begin after the November 2027 local and regional elections. The government says VAT refunds for the poorest could offset some effects, but middle-class opposition has already emerged.

Extraordinary presidential powers are special authorities granted to the president to make major government changes by decree. Under this bill, they would let President Abelardo de la Espriella reorganize the State directly. That matters because changing institutions could reduce spending, but it could also alter how public agencies are staffed and managed.

Article 7 covers ministries and administrative departments. The president could abolish, merge, or split them, and change their names, objectives, and organizational structures. The power also extends to superintendencies, agencies, special administrative units, and public institutions. These bodies could be abolished, merged, split, or given a different legal status.

Article 96 separately addresses tax agency DIAN personnel. Former DIAN director Luis Carlos Reyes said it could eliminate annual competitive entry exams and return to appointing thousands of officials. The bill therefore reaches beyond budgets: it could change the structure and staffing of central government institutions.

The bill proposes two direct reductions in public-sector costs. It mandates a 20% cut in the salaries of State employees, while excluding the security forces. It also seeks to halve the costs of temporary contracts. These measures could reduce government spending quickly, but they would affect public workers and the way agencies hire labor.

The bill pairs those cuts with targeted VAT relief. It proposes a mechanism that could refund up to 100% of IVA payments for about 19 million of Colombia’s poorest citizens. In practice, eligible households would receive back the VAT they paid, potentially shielding them from some price increases caused by the tax reform.

The proposal does not offer the same protection to everyone. The article reports growing pressure on the middle class and opposition from within the president’s congressional coalition. The final impact would depend on how the refund system works and whether Congress approves the spending and tax measures.

The bill would remove several popular products from Colombia’s VAT exemption list. It specifically names cocoa, coffee, sugar, and fruits, while the article also discusses vegetables and higher taxes on gasoline, liquor, and cigarettes. The proposal matters because these are ordinary purchases or widely used products, so tax changes could quickly reach household budgets.

The proposed rate on newly taxed food products is 19%. An increase in gasoline taxes would inflate pump prices. Liquor and cigarettes would face VAT as vice products, potentially making them up to 53% more expensive. The article does not give a precise new gasoline price.

The government proposes refunds of up to 100% of IVA payments for about 19 million of the poorest citizens. That could reduce the effect on eligible households. However, the article says the middle class would face increased pressure, and most of these tax increases would take effect only after the November 2027 elections.

VAT, or value-added tax, is a consumption tax collected through sales. Businesses charge it when goods or services are sold, and consumers usually pay it as part of the final price. In Colombia, the article refers to VAT as IVA. Raising it matters because the tax applies when people spend money, not when they earn it.

For example, the bill would remove cocoa, coffee, sugar, and fruits from an exemption list and apply a 19% sales tax. It would also raise taxes on gasoline and apply VAT to liquor and cigarettes. A household buying food or fuel would therefore face higher prices at the point of purchase.

Lower-income households often have less room in their budgets after essential spending, so consumption taxes can take a larger relative share of their income. The bill proposes refunds for up to 19 million poorest citizens. Even so, the article reports increased pressure on the middle class and internal coalition opposition.

The bill delays most consumer tax increases until after Colombia’s November 2027 local and regional elections. The article describes this timing as an apparent compromise with Congress and Colombia’s political forces. The likely purpose is to reduce the immediate political cost of higher prices before voters choose local and regional leaders.

The delayed measures include higher taxes affecting products such as food, gasoline, liquor, and cigarettes. By postponing them, the government could seek approval for the broader rescue package without imposing its most unpopular effects immediately. The bill also offers VAT refunds for some 19 million poorest citizens and corporate tax benefits, which may shape negotiations.

The strategy has not eliminated resistance. The article says increased pressure on the middle class has already produced opposition within De la Espriella’s congressional coalition. Congress must still weigh spending cuts, tax increases, refunds, and corporate benefits before the proposed changes can move forward.

The bill combines consumer tax increases with corporate tax cuts to pursue two goals at once. Higher taxes on goods would raise government revenue, while lower corporate rates would make investment more attractive. The government proposes gradually reducing corporate income tax from 35% to 31%, plus a lower rate for large companies investing in new enterprises.

The mechanism is a trade-off. Consumers would help finance the rescue through higher VAT and other taxes, while companies would receive incentives to expand investment. The government appears to expect new enterprises and investment to support economic activity, even as corporate tax rates fall.

The historical evidence in the article is unfavorable. The Inter-American Development Bank says a similar scheme introduced by former President Alvaro Uribe was ineffective in promoting investment. That history raises doubts about whether the proposed corporate benefits would deliver the investment the government seeks, while the consumer tax increases could still take effect.