Colombia’s Fiscal Woes and the 19th Theorem of Government

September 17, 2024 by Dan Mitchell @ International Liberty 

Three days ago, I wrote about Brazil’s budgetary chaos and I issued a corollary to my Golden Rule.

Whenever there is a fiscal mess, excess spending growth is the cause.

Today, let’s apply that lesson to another South American country.

There’s currently a big fiscal controversy in Colombia. So I did my usual thing of going to the IMF’s World Economic Outlook database (I’m not a fan of that bureaucracy’s policy agenda, but they have the best numbers) to see whether the nominal spending burden was increasing faster than the private sector.

Lo and behold, that’s exactly the case.

Since spending is not growing more than twice as fast as GDP, Colombia’s numbers are not nearly as bad as Brazil’s.

But there is nonetheless a bad pattern, with the gap between spending growth and GDP growth getting worse in more recent years.

I’m writing about Columbia today because of a Bloomberg report by Oscar Medina. Here are a few excerpts.

A group of Colombian lawmakers submitted a proposal to slash the government’s 2025 budget to avoid the need for tax rises as Gustavo Petro’s government navigates his latest crisis. The proposal…aims to cut the budget by 12 trillion pesos ($2.9 billion)… Petro faced a major political crisis this week after a proposal to increase diesel prices led thousands of truck drivers to block roads across Colombia’s main cities and highways, increasing food prices and risking fuel shortages. …

Colombia’s fiscal accounts are strained due to weak economic growth and lower-than-expected fiscal revenue. The government is projecting a budget deficit of 5.6% of gross domestic product for this year, the widest since the pandemic. Finance Minister Ricardo Bonilla warned that tax increases would be needed to fill that gap when submitting the nation’s 2025 budget… However, the recent crisis puts Petro’s government in a weak position to propose additional taxes, said Angélica Lozano, a senator on the budget committee.

I have two observations on this story.

First, I’m glad to see taxpayers protesting. Just as we recently saw in Kenya, Bolivia, and Sri Lanka, people are sick and tired of being fleeced by politicians.

Second, the story references “lower-than-expected fiscal revenue,” but the IMF data shows that the tax burden in Colombia has jumped by 7-percentage points of GDP this century.

I realize that very few readers are intensely interested in Colombian fiscal policy, but it does give us further confirmation of my observation that “whenever there is a fiscal mess, excess spending growth is the cause.”

Indeed, I’m going to use that statement as part of a new, 19th Theorem of Government.

And I added a second sentence so that we can see both the cause of fiscal problems and the solution to fiscal problems.

P.S. Click here for a tutorial on the economic harm of excessive government spending.