Former Finance Ministers ask Congress to reconsider the SGP reform project

In an open letter to the Congress of the Republic, 23 former ministers and former vice ministers of the Treasury referred to the bill that would seek to reform the General Participation System (SGP) in Colombia and the impact that this would represent for public finances given the current fiscal situation.

(Read more: This is the proposal that would accompany the reform of the General Participation System)

According to the document, The initiative would increase the SGP resources of the departments, districts and municipalities until it reaches at least 46.5% of the current income of the Nation. To better measure its magnitude, it must be taken into account that this participation is currently at 25.7%, based on the General Budget of the Nation (PGN) presented by the Government for 2025.

The main criticism that the group makes of the project is that it is not supported by a clear redistribution of powers between the Nation and the territorial entities. A problem that, if it worsened, would have to be resolved with subsequent laws.

“Fiscal sustainability and macroeconomic stability, assets that have characterized the country in recent decades, are seriously threatened, since it would make it impossible to meet the debt anchor of 55% of GDP and we could reach the ceiling in a few years.” of the debt of 71% of GDP, established in law 2155 of 2021″, is explained in the text.

The above is based on the fact that this initiative could aggravate the already critical fiscal situation by increasing the inflexibility of PGN spending.

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(Read more: This is the proposal that would accompany the reform of the General Participation System)

Because? Taking as reference the amount proposed for next year, and including the GSP, the inflexible expenses of the Budget amount to $362.4 billion, that is, 113% of the current income projected by the Government. A figure that also includes the 12 billion that the Executive expects to raise if the financing law is approved.

Among these inflexibilities are personnel expenses ($60.2 billion), transfers for pensions and retirement allowances, including the Social Benefits Fund for Teachers ($70.5 billion), public debt service ($112, 6 billion), the specific allocations of legal origin of the income tax and complementary to the Social Security Health System ($13.5 billion), the Icbf ($4.8 billion), the Sena ($3.2 billion), and Public Higher Education Institutions ($6.6 billion).

In this context, the signatory former ministers and vice ministers warn that, as a consequence, “to finance the rest of the operating expenses, such as the acquisition of goods and services necessary for the operation of the public administration and investment expenses, the national government has no other alternative than to go into debt, increasing the amount year after year. of public debt”.

In this order of ideas, according to the letter, although it is necessary to change the responsibilities and powers between the Nation and the territorial entities in a framework of fiscal sustainability, the group emphasizes that they must be defined and first quantify what responsibilities will no longer belong to the Nation and that the territorial entities will assume. This is a necessary task, since with this clarity the distribution of resources between them could be defined.

(Read more: Anif asks the Senate to listen to the specialists in the debate on the reform of the SGP)

On the other hand, it is mentioned that it is also important to anticipate reforms that allow deepening taxation characteristic of territorial entities.

“Defining the participation of territorial entities as a percentage of the nation’s current income is highly inconvenient. Every time new resources are needed for the nation, as will most likely happen if this legislative act is approved, it will be necessary to adopt tax reform projects , but these would automatically increase public spending due to the increase in the General Participation System”, they warn. This would also produce a vicious circle. “impossible to close between higher taxes and higher public spending.”

Taking all of the above into account, the group calls on Congress to reconsider the project and to open discussion scenarios with academia, representatives of territorial authorities and civil society, so that “the country as a whole studies and resolves the fiscal decentralization scenario that best suits the well-being of the entire Colombian population.”

(Read more: Public spending should suffer a new cut this year to comply with the fiscal rule)

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