The announcement came as ministers from the treasury met with business leaders to discuss what measures might be taken to cover the gap, which threatens to lift Colombia's fiscal deficit over the 2.1% of GDP target prescribed by the IMF.
The businessmen will, for the most part, have been reassured by the meeting as finance minister Alberto Carrasquilla ruled out raising the level of income tax, introducing a new capital gains tax, or the issuance of compulsory bonds. And the two groups were largely in agreement over the government's plan, confirmed yesterday, not only to bring forward from 2005 to 2004 a two-point increase in value-added tax (VAT), but also to raise the rate from 7% to 10% on various components of the basic food basket such as coffee, rice, and chocolate.
The private sector was, however, less impressed by the plans to tax pensions, and more generally by the fact that the government is manifestly not in full control of public finances. President Alvaro Uribe caused the initial shock on 4 July when he announced that Colombia was facing a revenue gap of Col$2.5tn next year - an unpleasant surprise compounded by Carrasquilla's admission on 13 July that the shortfall could be as high as Col$3.3tn. Following yesterday's further revision, some businessmen were calling yesterday for the government to undertake an extensive revision of the fiscal process.
The government sees the 2% VAT rise bringing an extra Col$700bn to the coffers and the 3% rise a further Col$500bn. It expects the tax on pensions to earn Col$800bn, the balancing of the books between social security and private pension funds to produce Col$800bn, and the nationwide reform programme to save somewhere between Col$500bn and Col$1tn.
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