Colombia’s Locked Budget: What the Fiscal Squeeze Means for the July 20 Tax Reform

Colombia · Money

Colombia’s handover fight now has hard numbers attached. The outgoing government has revealed a 2026 budget almost entirely locked — barely 35 trillion pesos of room out of hundreds — and it is that squeeze, more than the political theatre, that makes the coming tax reform matter to residents.

A budget with almost no room

Presenting its handover report, the outgoing finance ministry said 93.7% of the 2026 national budget is inflexible, tied up in debt service, pensions, health and prior commitments. That leaves only about 34.6 trillion pesos, roughly US$10 billion, of discretionary spending.

It framed the position as the legacy the incoming government inherits. Whoever holds the purse from August has very little that is not already spoken for.

How it got here

The ministry attributed much of the squeeze to court and legislative decisions, which it said stripped tens of trillions of pesos of available financing. That includes the striking-down of an earlier tax reform and denied financing laws.

The incoming government tells a different story, pointing to spending choices and promising a large budget cut for 2027. Both sides are using the numbers to shape the argument ahead of August.

Why the tax reform matters now

Against a locked budget, the tax reform the outgoing government still plans to file on July 20 takes on added weight. It reportedly seeks to raise around 21.8 trillion pesos next year, rising further later in the decade.

The incoming team has asked for it not to be filed, arguing fiscal design should be its own. Whether it lands, and in what form, will shape the country’s finances into 2027.

What it means for foreign residents

For expats and nomads, none of this changes a rule today, and no rate moves before the August 7 handover. The reason to pay attention is what a tax reform could contain.

Colombian tax residents are taxed on worldwide income, so changes to income-tax brackets, VAT or wealth taxes would reach many foreigners. A tight fiscal position makes a broad-based reform more likely, not less.

What to watch

The near-term marker is July 20, when Congress reconvenes and the government could file its bill. The other is the incoming government’s own fiscal plan, expected after it takes office.

Between them, they will decide whether taxes rise and on whom. Until then, current rules stand, and there is nothing residents need to do today.

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