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Lasso’s tax reform is in danger from the Assembly’s ‘new majority’

Published on August 16, 2022

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If the Assembly ‘knocks down’ the reform, the option left to the President is a total veto, which would only keep the reform in place for one more year.

The only reform that the Government of Guillermo Lasso has managed to pass in the Assembly has become the next prey of the so-called ‘new majority’ of the opposition.

It is the tax reform, which entered the ministry of law at the end of 2021, and which could be repealed, at a complicated moment in the relationship between the Assembly and the Executive.

Although both functions speak of an intention of dialogue, the situation within the Legislature shows that the environment continues to be hostile to the Executive.

The process of repealing the tax reform shows the tensions. The first debate began on August 9th, 2022, and such is the priority that the opposition majority gives it, that it did not make any changes to the agenda in the session, to speed up the process.

The first debate report contains only one article: the repeal of the tax reform decree-law.

And the argument to do so is that the Assembly can indeed repeal taxes when they have entered into force by the ministry of law.

Though the Constitution says that only the President can present bills that create, modify or abolish taxes.

However, the same Constitution says that urgent economic projects that enter through the ministry of law, may be modified or repealed at any time by the Assembly.

And now, even though the tax reform has helped significantly reduce the country’s deficit, the opposition in the Assembly argues that the tax reform punishes the middle class.

“This law has not been useful as an economic development tool, nor has it generated fiscal stability. There is even a debate about whether it is constitutional or not,” said John Vinueza (independent) during the debate.

The battle is political

Beyond the arguments against the tax reform, there are enough votes to repeal it.

The new majority, made up of UNES, the Christian Social Party (PSC) and the ‘rebels’ of Pachakutik and the Democratic Left, are driving and promoting this initiative. Together they add up to more than the 70 votes necessary to approve, in second debate, the repeal.

In this hostile scenario, the Government is publicly opposing the action and is waiting for the outcome, but it is not negotiating.

A position that was also evidenced in the process of vetoing the Law for the legitimate use of force.

In that case, the ruling party hoped that the objections would pass without a pronouncement from the Assembly, and even the PSC had announced that it would not vote for ratification; however, UNES and the ID did negotiate votes and managed to override the presidential veto.

Government options

Given that the Assembly is in a hurry with the process of repealing the tax reform and that there is not much opposition to it, it could reach a second debate in the next two months.

If legislators approve it, the Government will have two options left.

The first would be to veto it for unconstitutionality, on the grounds that the Assembly cannot repeal taxes.

In this case, the project would spend a month being analyzed by the Constitutional Court. But in this scenario, the Government runs the risk that the Court will not agree with it, as has already happened with the raise in teachers’ salaries.

The second option would be a total veto. Then the Assembly could not deal with the project for a year, which would give the Government the possibility of keeping the current tax reform for 12 more months.

However, after the year, the Assembly, with 90 votes, could ratify the repeal.

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