On 29 November, Ecuador’s opposition-controlled national assembly voted to repeal the tax reform that was introduced by President Guillermo Lasso’s government in November 2021.
Analysis:
The vote to repeal the tax reform is for now largely symbolic – President Lasso has the power to veto the opposition’s bill, meaning that his economic programme would be safe for at least a year. However, the vote demonstrated the near-total unravelling of Lasso’s alliance in the national assembly; he has totally lost the support of the indigenous Pachakutik, which offered the key to steering his economic reforms through the legislature. Faced with the prospect of legislative gridlock for the remainder of his four-year term, Lasso is instead preparing to secure constitutional reforms via an eight-question referendum. Yesterday, he issued a decree confirming the calling of this referendum, which must now be organised by the national electoral council (CNE).
- With 100 votes in favour and 13 against, the national assembly voted to repeal the government’s tax reform, which had scraped through the legislature late last year. The reform had boosted government revenues by cutting tax exemptions for higher earners and imposing a temporary wealth tax on high earning citizens and businesses. Lasso had argued that these reforms were necessary to address the widening of the fiscal deficit during the coronavirus (Covid-19) pandemic.
- The tax reform is a key pillar of the fiscal adjustments agreed upon in Ecuador’s extended fund facility (EFF) deal with the International Monetary Fund (IMF), which was entered into by former president Lenín Moreno (2017-2021) in 2020 and extended by the Lasso administration in September 2021.
- The bill to repeal the reform was submitted by Viviana Veloz, of the left-wing Unión por la Esperanza (Unes) coalition which is the largest grouping in the legislature. Veloz argued that the tax reform is harming the middle class and highlighted a 28 October ruling by the constitutional court which declared certain parts of the tax reform to be unconstitutional – including its elimination of inheritance tax for certain groups and its tax provisions for entrepreneurs, among other things.
Looking Ahead: Lasso is expected to veto the bill, but the tax reform is still at risk in the long run. Under Ecuador’s constitution, the national assembly must wait a year to reconsider a bill following a presidential veto. However, the veto can then be overturned with the support of two-thirds of legislators.