Finally, the same thing happens with competition. It must be free, without controls. In the Semilla government, they believe that by imposing a law they will encourage competition, when the solution is to open the markets.
Finally, the same thing happens with competition. It must be free, without controls. In the Semilla government, they believe that by imposing a law they will encourage competition, when the solution is to open the markets.
In recent days, a video from Plaza Pública has circulated, based on an article titled: Informal Work, a Reflection of Capital Concentration. The arguments presented are clearly biased and run the risk of terribly misleading public opinion. The article wrongly claims that large conglomerates, such as those in cement, food, beverages, and banking, manipulate prices and depress wages due to a lack of competition.
As CEO of a company providing artificial intelligence services, I constantly compete by offering attractive salaries and conditions to my team. My employees frequently receive offers from larger companies seeking to attract the talent we have developed. Generally, these offers come from sectors such as banking, food, beverages, steel, or cement.
Faced with these competitive offers, some of my employees decide to leave. Nevertheless, this is the essence of competition: in Guatemala, there is real competition in business and in the labor market. The cause of the lack of investment and better wages in our country is another one; and it will not be solved with a new law.
Investment in a country is measured through Gross Fixed Capital Formation (GFCF). This indicator reflects the money invested in capital goods that drive the production of goods and services, such as infrastructure construction, the purchase of equipment and machinery, or the creation of productive assets. While countries with higher investment usually have this indicator above 25%, in 2023 Guatemala registered a GFCF of only 16.5% of Gross Domestic Product (GDP).
The countries that grow the fastest have designed fiscal policies that favor investment. A clear example is Ireland, whose GFCF reached 54% in 2019, meaning that more than half of the economic surplus was reinvested in the country. The key to success? Ireland reduced its Income Tax (ISR) from 50% in 1982 to 12.5% in 2003, generating a fiscal environment that promoted growth. I recommend reading the article “The Case of Ireland: The Social Benefits of Reducing the Size of the State” from the Universidad de los Andes in Colombia to delve deeper into this case.
Estonia is another interesting case: it has a 20% ISR on distributed profits, but applies 0% on reinvested profits, which led Estonia to reach a GFCF of 36% in 2007. Here, on the other hand, we pay ISO even when we have losses.
In Guatemala, there is real competition in business and in the labor market. The cause of the lack of investment and better wages in our country is another one; and it will not be solved with a new law.
In Guatemala, we have a marked aversion to profits and investment. Our fiscal structure sends a clear message: if you generate a profit, you must pay 25% ISR, but if you decide to spend, you are only required to pay 12% VAT. This imbalance encourages consumption instead of investment. This is reflected in remittances, where most are destined for consumption and not for the creation of productive assets.
Reducing ISR not only increases national investment, but also turns the country into an attractive destination for foreign direct investment (FDI), generating a virtuous circle of greater investment, attraction of capital, and competition. Examples of countries oriented toward the generation of business and profits illustrate how a competitive fiscal structure can bring GFCF above 30%, thanks to an increase in foreign investment. Guatemala barely reaches 1.5% FDI relative to its economy, while Ireland has reached 81%, Bulgaria 31%, Panama 16%, and Armenia 12%.
While other countries promote growth through policies that encourage investment, Guatemala taxes key inputs such as cement. This is unique in Central America and makes construction more expensive, directly affecting the possibility of building more affordable housing. If we want cheaper houses, taxing iron and cement is not the way. The same happens with the specific tax on beverages. Here it has been wrongly believed that penalizing profits can encourage investment, but experience tells us exactly the opposite.
Finally, the same thing happens with competition. It must be free, without controls. In the Semilla government, they believe that by imposing a law they will encourage competition when the solution is to open the markets. With medicines, it is the government that makes it difficult through cumbersome procedures for cheaper medicines to come from abroad. Remove restrictions on imports and we will see prices fall.
In Argentina, Milei eliminated all the rules for oil exploitation with a stroke of a pen, turning it into one of the fastest-growing sectors in the Argentine economy. He also eliminated rent controls and caused a resurgence of the real estate market, lower rents, and more competition.
Let us be careful with promotions on social media using misleading arguments. It is better to observe what has worked in other countries, and we will see the path more clearly: the successful countries that grow the most are those that bet on economic freedom, lower taxes, and free competition.
