The Congress of the Republic of Colombia has put on hold the tax reform project promoted by the government of Gustavo Petro, an initiative that aimed to raise $16.3 billion (in principle it was $26.3 billion) to finance the nation’s general budget (PGN) of 2026. The decision, adopted by the Senate’s Fourth Commission with nine votes against and four in favor, represents a setback for the executive branch and leaves into question financial sustainability and alternatives to cover the deficit. Budget.
According to Senator Enrique Cabrales, President of the Fourth Commission, the result was “a victory for fiscal responsibility and for the wallets of citizens.” He explained that the government’s proposal “imposes an excessive burden on Colombians” and reiterated Congress’s commitment to austerity measures and control of public spending.
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Cabrales stressed that the initiative does not represent a real adjustment for the country and warned that it would penalize investments, competitiveness and access to credit. “Colombia needs more austerity measures, stricter controls on bureaucratic spending and a head-on fight against tax evasion and informality, rather than placing even more burdens on taxpayers.” said the senator, who also stressed the importance of pushing forward any reform “hand in hand with the productive sectors.”
Of course, President Gustavo Petro referred to the situation and regretted that the population with fewer economic resources in Colombia will be severely affected and that the consequences of the decision of the economic commissions will not take long to be reflected in the reality of the country.
“If the rich don’t pay for the crisis, the poor will pay for it. As long as we’re the government, we won’t make the poor pay for it, period.” As of today, the unforeseeable consequences are visible” he suggested.
The rejection of the so-called financing law came against the background of political tensions and questions about the sustainability of public finances. After the decision was confirmed, several experts reacted and expressed their opinions on the matter.
For example, the executive director of Fedesarrollo, Luis Fernando Mejía, noted through “It is untenable to argue that impacts of this magnitude threaten fiscal stability or the sustainability of public spending.”
Mejía stressed that the scale of the necessary adjustment is manageable and that the government must resort to budget cuts, as it did after the non-adoption of the 2024 Financing Law.
Former Finance Minister José Manuel Restrepo, rector of EIA University, in turn pointed out that the outcome was predictable. According to him, “the government knew in advance that it had poor financial and budget planning. The government knew that this budget was overcrowded and that there was no capacity in the country to finance it.”
Restrepo stressed the need to cut public spending and avoid declaring an economic emergency: “Broad use of a constitutional tool like economic emergency would make no sense if the government fabricates the emergency and then enacts it. That makes no sense.”
He insisted that the only possible way is to “reduce the excess operating expenditure and wasteful operating expenditure as well as poorly targeted investments that currently exist in the state budget.”
Along the way, the former official recommended that the government “cut operating costs, government bureaucracy and poorly targeted investments” and instill confidence among international investors to reduce the cost of public financing. And he warned that it was unsound to argue that a 3% cut to the state budget was unworkable.
Former deputy supervisory director of Dian Christian Quiñonez and founding partner of Clavertax Assessment attributed the failure of the reform to the political situation. For him, “it is obvious that the tax reform or the public finance law is failing because there is not a year to process such reforms.”
He pointed out that the relationship between the Congress of the Republic and the government is characterized by the breakdown of relations “It was clear that tax reform was not going to pass, especially in an election year.”
Likewise, he suggested that the government should reconsider the 2026 budget and wait for the passage of the economic reactivation law discussed in Congress, which provides mechanisms such as amnesties and tax normalization to increase tax revenues.
The rejection of the tax reform presents the government with the challenge of covering the budget deficit forecast for the coming years. The president of the National Association of Financial Institutions (ANIF), José Ignacio López, warned of this “The fiscal problem remains, reflected in the fact that the primary deficit would be $11 billion higher than forecast in the medium-term fiscal framework.”
According to him, a budget deficit of 6.2% of GDP is expected in 2025, while a primary deficit of almost 3% of GDP is expected in 2026, which could translate into a budget deficit of 7% if the temporary reduction in debt service is not maintained.
López explained that the debt management measures made it possible to reduce interest payments but also created fiscal space, which the government used to increase spending by 0.5% of GDP. “The government has presented a financing law that we consider inconvenient because it contains several elements that affect investments, savings and therefore economic growth and, in the long term, oppose tax collection,” said the expert.
Also, recommended further cuts to next year’s budget rather than insisting on tax reform which, according to their analysis, could have a negative impact on investment and economic growth.
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