Colombia Now Subsidizing Employee Payrolls & Tax Payments; Medellin Chamber of Commerce Highlights Recovery Challenges

In yet another effort to shore-up Coronavirus-crisis business liquidity, President Ivan Duque and Finance Minister Alberto Carrasquilla unveiled May 6 two new programs for payroll subsidies as well as income-tax-payment deadline delays.

Under the latest “declaration of economic emergency,” all employees of micro, small, medium and large companies here that have suffered sales declines of at least 20% in April 2020 (versus April 2019) will each get a COP$350,000 (US$90) direct transfer from the government for the next three months.

That payment – estimated to benefit some 6 million Colombia workers — is equivalent to 40% of the current Colombia minimum wage, President Duque explained.

In addition, the government will postpone the second regular payment of corporate income tax (normally at end-May) to end-2020, helping companies conserve cash to meet payroll and other expenses.

Finance Minister Carrasquilla added that the new worker/business subsidies — totaling about COP$6 trillion/US$1.5 billion) — come on top of other Coronavirus-crisis programs that have already enabled companies to restructure on more-favorable terms outstanding loans equivalent to nearly COP$150 trillion (US$38 billion), helping to save millions of jobs.

“Of course, we would like to finance the entirety of payroll [of Cornavirus-slammed companies], but we don’t have enough money for that,” Carrasquilla explained, citing fiscal limits.

Nevertheless, the new program will cover “a very significant percentage of payrolls for the next three months,” especially for micro, small and medium-sized businesses, he added.

To qualify for these grants, companies will have to document through an auditor or accountant their actual payrolls — and prove payment to workers each month via the mandatory “PILA” employee-benefits platform here, he added.

As for the income-tax payment delays, “companies that do not have cash can hardly pay those taxes, and if they fall into default they generate [bigger] problems later, which we want to avoid,” Carrasquilla added.

Medellin Chamber of Commerce Proposals

Meanwhile, in a new presentation to a Medellin Chamber of Commerce for Antioquia (MCCA) economic-outlook forum, former Inter-American Development Bank chief economist Eduardo Lora explained that a huge challenge facing not just Medellin but also Colombia is to generate more formal, tax-paying and benefits-generating employment — in the wake of Coranavirus crisis.

Colombia needs to generate at least 4 million more formal-sector jobs quickly, MCCA quoted Lora as saying. Such a development not only would improve living conditions for workers but also would shore-up Colombia’s tenuous fiscal situation by generating tax revenues.

However, the Coronavirus crisis instead is causing just the opposite, as millions of people lose income — and temporarily lose jobs — while about 10 million more people here are working fewer hours. “These are huge numbers like never before,” Lora said.

To get Colombia back on track, Lora proposed that the government temporarily subsidize formal employment via a mix of policies that would reduce unemployment and stimulate demand.

Beyond that, tax reform is needed to “define how the debts we have today are paid in the future,” he said. What’s more, cities need to think more profoundly about the total impact of promoting telecommuting and teleworking — as is now mandated during the current crisis for office employees.

While Lora added that Colombia is unlikey to see a return to the growth rates of 2019 before 2023 or 2024, former Commerce Minister Jorge Humberto Botero added in a separate presentation here that the Colombian economy could contract by 5.5% this year — worse than the 4.5% contraction in the 1999 economic crisis.

In another presentation, Universidad de los Andes professor Sergio Clavijo predicted that Colombia GDP growth in the first quarter of 2020 might be around 2%, but would fall into negative territory for full-year 2020.

Beyond coping with the current crisis, government also needs a longer-term refocus on converting some 9 million Colombians in the informal sector to the formal jobs sector, Clavijo added.

At the same forum, former Colombia Agriculture Minister Juan Camilo Restrepo added that the Coronavirus crisis currently is estimated as costing Colombia at least COP$53 trillion (US$13.5 billion).

To recoup fiscal losses that accompany such economic crises, government can’t just raise taxes, since that would kill even more tax-paying business and hence kill more tax-paying jobs, he said.

Instead, “everything points to the fact that the government is going to have to [recoup losses] by borrowing more and raising the public debt,” hence postponing fiscal balance recovery into future years.