The Congress approved a controversial redistribution of the General Sales Tax (IGV) that reduces 2 percentage points To the central government to benefit municipalities, said economist Jorge González Izquierdo during a television interview.
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The measure will move 8 billion soles In four years from the Executive to local governments, gradually implementing with half an annual point until 2029, the specialist confirmed.
González Izquierdo criticized that “The weight of this measure will not assume it” The current government but the next administration, qualifying the decision as an irresponsible electoral strategy.
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Municipalities with low management capacity
Municipalities execute Only 63% of your budget Investment according to the Fiscal Council, while more than 20 thousand national projects were paralyzed in 2024, the economist revealed.
Of the total paralyzed works, 70% corresponds to municipal governmentsevidencing serious deficiencies in local management capacity that will receive additional millionaire resources.
The Comptroller Documenta that municipalities They start investment projects and paralyze them For multiple reasons, questioning the effectiveness of delivering more funds to these public entities.
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Fiscal deficit threatens economic stability
The Government will modify the Fiscal Regle from 2.2% to 2.8% From GDP by 2025, sending signs of instability to international markets, González Izquierdo warned.
This flexibility of fiscal norms represents “irresponsibility” That breaks the economic discipline maintained for three decades in the country, warned the economic specialist.
The crisis of Child poverty reaches 43% In children under six years according to INEI, while politicians ignore this emergency to focus on electoral populist measures, González Izquierdo denounced.
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Peru IGV Redistribution: fiscal Irresponsibility or Municipal Empowerment? A Conversation with Economist Dr. Anya Sharma
Keywords: Peru, IGV, General Sales Tax, Fiscal Deficit, municipalities, Economic Stability, Jorge Gonzalez Izquierdo, Anya sharma, Fiscal Rule, Child Poverty
Time.news: Welcome, Dr. Sharma, to Time.news. The Peruvian Congress recently approved a notable change in the distribution of the General Sales Tax (IGV), drawing a lot of attention. Economist Jorge González Izquierdo has been particularly critical. Can you give our readers a quick overview of what’s happening?
Dr. Anya Sharma: Thank you for having me. Essentially, Congress has decided to reduce the central government’s share of the IGV by 2 percentage points, transferring those funds to municipalities. According to González Izquierdo, this translates to roughly 8 billion soles over four years, implemented gradually.
Time.news: That’s a considerable sum. What are the intended benefits of this redistribution of the General Sales Tax in Peru?
Dr. Anya Sharma: The idea, ostensibly, is to empower local governments. Municipalities, presumably, can then use this increased funding to address local needs, such as infrastructure improvements, public services, and local economic growth projects. The political narrative often emphasizes bringing resources closer to the people.
Time.news: However, González Izquierdo has voiced strong criticism.What are his main concerns regarding this fiscal policy shift?
Dr. anya Sharma: his concerns are multifaceted. Firstly, he argues that the current government is effectively pushing the financial burden onto the next management, calling it an “irresponsible electoral strategy.” Secondly, and perhaps more crucially, he highlights the existing deficiencies in municipal management capacity.
Time.news: You mention management capacity. Can you elaborate on that?
Dr. Anya Sharma: Certainly. The Fiscal Council reports that municipalities are only executing around 63% of their investment budgets. Furthermore, a significant number of national projects – he cites over 20,000 in 2024 – are currently paralyzed, with 70% of those being municipal projects. González Izquierdo and others argue, with good reason, that simply injecting more funds into a system already struggling with execution and efficiency is unlikely to yield positive results. The Comptroller’s office even documents instances of municipalities starting investment projects only to abandon them for various reasons, raising questions about the overall effectiveness of increased funding.
Time.news: So, the worry is not just about the money itself, but about whether municipalities can effectively utilize these additional resources?
Dr. Anya Sharma: Precisely. It’s about absorption capacity, project management capabilities, transparency, and accountability at the local level. Without addressing these underlying issues, the increased funding could be wasted, misused, or simply remain unspent. Strengthening local governance mechanisms is paramount for a policy like this to be triumphant.
Time.news: The article also notes a modification to the fiscal rule, increasing it from 2.2% to 2.8% of GDP by 2025. What impact would that have on Peru’s economy?
Dr. anya Sharma: That’s a crucial point. Relaxing the fiscal rule sends signals of potential instability to international markets. González Izquierdo framed it as a break from three decades of economic discipline. A higher fiscal deficit can lead to concerns about debt sustainability, currency depreciation, and increased borrowing costs, potentially dampening investor confidence and hindering economic growth.
Time.news: How does this IGV redistribution and the adjusted fiscal rule connect to broader societal issues, such as poverty?
Dr. Anya Sharma: This is where the ethical and social dimensions come into play. While politicians are focused on these fiscal maneuvers, the crisis of child poverty is worsening.According to INEI data, child poverty, specifically affecting children under six, is reaching alarming levels. Critics, like González izquierdo, suggest that these populist fiscal policies are diverting attention and resources from addressing these critical social needs. The question is whether this redistribution will actually trickle down and benefit the most vulnerable segments of the population or be absorbed by inefficiencies and mismanagement at the local level.
Time.news: What practical advice do you have for our readers in Peru who are wondering about the potential impact of these changes on their lives and businesses?
Dr. Anya sharma: Stay informed and engage with your local representatives. Demand greater transparency and accountability in how these increased funds are being allocated and managed by your municipality. Support initiatives that focus on strengthening local governance and improving project management capacity. For businesses, especially those involved in public works or municipal contracts, be vigilant about potential changes in tendering processes and payment schedules. And, perhaps most importantly, continue to advocate for policies that prioritize social inclusion and address the root causes of child poverty. The future will largely depend on the integrity and effectiveness of management by municipal governments.
Time.news: Dr. Sharma, thank you for your insights. This has been a very informative discussion about the complex implications of this Peru IGV redistribution.
