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Moreno ends gasoline and diesel subsidy but keeps the IVA at 12 percent

President Lenin Moreno announced an end to the government subsidy for gasoline and diesel fuel Tuesday night but said the value added tax (IVA) will remain at 12 percent. The elimination of the fuel subsidy will result in a savings of $1.3 billion annually, he said.

President Lenin Moreno

In a brief address to the nation, the president also proposed the elimination of some import taxes, an overhaul of corporate taxes and revision of labor rules, changes that must be approved by the National Assembly.

Moreno said the economic measures are necessary to reduce the annual budget deficit and national debt, conditions set by the International Monetary Fund (IMF) in exchange for $9 billion in loans to be disbursed to the government over a three-year period.

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“These changes have been needed for a long time and now we are forced to make them,” he said.

The end of fuel subsidies means that the price for regular gasoline will increase from $1.85 a gallon to about $2.30 while diesel will rise from $1.08 to $2.27, based on current market rates. “Ecuador is one of only two countries in South America to maintain these artificial prices,” Moreno said. “The other one is Venezuela, not a very good example to follow.”

Without offering specifics, Moreno announced a three-year special tax on companies with annual revenue above $10 million, saying the move will raise $300 million a year. In addition, he said that public employees will contribute one day of earnings per month to the national treasury while their annual vacation days will be reduced from 30 to 15.

To “stimulate economic growth,” the president said Import taxes will be reduced or eliminated on a broad range of products, including computers and computer equipment, cell phones, clothing, cars, heavy machinery and raw material for agriculture and industry.

Repeating an earlier pledge, he said the tax on funds sent out of the country, commonly known as the exit tax, will be phased out.

Changes to labor law includes measures making it easier for companies to hire employees on a temporary contract basis and a reduction of some employee protections.

“The goal is to create more work, more entrepreneurship and better opportunities … boosting economic growth and employment,” Moreno said.

Except for ending fuel subsidies, which has been ordered by presidential decree and will go into effect within a matter of days, Moreno’s other proposals go to the National Assembly which will have 30 days to act.

57 thoughts on “Moreno ends gasoline and diesel subsidy but keeps the IVA at 12 percent

  1. Sounds like an excellent plan, long overdue. Regarding the fuel subsidy issue, I wonder if the street riots will begin this week or not until next week?

    1. Why do you want someone else to pay for your gas? Are you a tight wad? Why are you looking for handouts? Get a job!!

      1. I don’t understand why people say “do you want other people to pay for your gas”? It is a very ignorant statement. First off the “subsidy” in Ecuador is not actually a subsidy with gasoline. It is forgone profits that the government loses when selling the petrol to Ecuadorians at cost… seeing as its a taxpayer funded industry, selling the gas back to Ecuadorians at a profit seems less of a subsidy and more of a racket. Even if it was a real “subsidy”, however, that questions still doesn’t make sense. Most of the vehicles in Ecuador cost double what their market value actually is (new). Then after you have the car you have to pay a “new car tax” that goes on for 3 years. On a $20,000 car (that should have cost $10,000) you pay about $1500 a year for 3 years. That then diminishes over time but none the less you pay a very high matricula every year for a having a car in Ecuador. If you ad up the cost of all taxes, Ecuadorians more than pay for that “subsidy” (which isn’t really a subsidy anyway). In general i agree with the president’s opinion, even though the unrest it will cause is probably not worth it. I say they should get rid of all the “subsidies” and get rid of all the absurd taxes as well. The taxis pay very high fees for their licenses too, so i can see why they would less willing to accept the raise.

        1. It´s not that simple. Due to its limited refining capacity, Ecuador IMPORTS 57% of all diesel and 47% of the other typs of gasoline sold in the country (not to mention 78% [!] of all GLP, ie gas licuado de petróleo) at market prices which is then sold at a loss here. So that IS actually money spent and not forgone profits. I agree with your description of the cost of owning a (new) car but then, as you point out, the older your car is the less you pay. I renewed the matricula of my Renault Twingo last week for 70 dollars + 22 dollars in local (Azuay) taxes which is not exceptionally cheap but it´s no big deal either. The excessive price of new (imported) cars is almost entirely due to stiff tariffs and to a much lesser degree the ICE luxury tax and the FODINFA (child development fonds) tax.

          1. If we are going to go into minute details its not as simple as you are saying either. Yes, the import diesel and gas but only b/c of the refining capacity, it is not like they don’t produce enough oil to supply the country. And Let’s not forget the fact they could be refining it themselves at this very moment, but corruption and inept politicians wasting billions on refineries that don’t exist certainly hasn’t helped (aka Eloy Alfaro Refinery of the Pacific) and then of course there is the Esmeraldas Refinery, which they magically disappeared 2 billion into, that has been running at low capacity for a while b/c of the “insufficient repairs”. Just on these squandered projects alone they could have funded the “subsidy” for years.

            In regards to the GLP, that was not taken into account in my comment, i don’t know if it is part of this discussion. as far as I know they are not going to remove the subsidy (and yes that is more of a real subsidy in my opinion) on GLP at this time.

            And as far as the matricula you are definitely paying less than anyone i’ve ever met. The average $8,000-$9,000 vehicle, in Cuenca at least, pays about $300 a year after all the taxes added up assuming its older than 5 years. Regardless, even when you buy an old car you are still paying at least double what it would cost elsewhere and that is the import tax carrying over to the next owner.

            1. Pretty much agree except when you say it´s “only” because of the refining capacity – that is the whole issue and has been for the last 40 years – imagine the billions of dollars spent on subsidizing (I do insist that, technically, they ARE subsidies) those imports were used to actually develop the country and/or diversify away from oil.

              Yes, the GLP remains unaffected by the measures but I still find it amazing that most of it is imported
              With regards to car taxes: next month our 1999 Trooper comes up for inspection and I bet we´ll be paying a lot less than last year because of the elimination of the green tax – a measure that does not make sense at all ecologically even if the money generated by it was probably never used for any environment-related improvements.

      2. Exclamation marks can’t make up for the fact that you clearly don’t understand the first thing about this subject.

  2. in my opinion Moreno is truly a great president….a shame that he will not seek reelection

    1. Running for reelection would be too embarrassing. His approval rating is currently at 14%, i.e., your opinion is not shared by 86% of the country.

    2. I disagree, the fact that he won’t seek re-election allows him to do the hard and unpopular things without having to pander to anybody in preparation for an election.

      1. Like borrowing 9 billion from the IMF? What is this money earmarked for, new infrastructure or pocket linings?

        1. It’s now up to $14 billion and ending the fuel subsidy was a precondition for receiving another $4 billion in March. For the record, in two years Moreno has borrowed more than twice what Correa borrowed in 10 and the combined interest rate is nearly 2% higher than the interest rates on the loans taken out during the Correa administration.

    3. Louis, if your comment was in /sarcasm font/ it would be perfect.

      As it stands though, it’s just embarrassing.

      Moreno has been an unmitigated disaster … the ONLY positive thing he’s done … is that he made it more difficult for Correa to ever come back and inflict more catastrophic damage.

      1. I’d ask you to specify what catastrophic damage he inflicted, but people gullible enough to believe that are never informed enough to come up with an answer based on actual facts.

  3. Maybe the president should eliminate the fuel subsidy for private vehicles but keep it for commerce and public transportation. Public employees contributing one day a month’s pay to the national treasury is a bizarre concept. Less vacation time? Govt. jobs just became less cushy.

    1. He also cut their vacation time in half.

      92% of government workers are teachers, police and healthcare providers. You think those jobs are “cushy”?

      1. Misty. Start planning for your life well, most Ecuadorians eat and waste national recourse like there’s no tomorrow, very unserious and stupid. People who don’t have aim in life

        1. In what world? In most developed countries in the world, employees get 4 weeks off per year.

          The reason public sector employees get 30 days instead of 15 is because unlike private sector workers in Ecuador, they don’t get any profit sharing. I get a share of my company’s profits every December. It’s roughly equivalent to 15 days’ salary. Public sector employees give that up in return for an extra two weeks off. That’s hardly excessive.

      2. There are many government jobs in Ecuador. It is a socialist country where government supports many of it’s citizens by giving them jobs. From my own personal experiences dealing with the government here is not to get frustrated and let the process complete no matter how long it takes. In a real private sector environment most of these people would have been replaced long ago, but it is what it is.

        1. 92% of government workers in Ecuador are teachers, police and healthcare workers. Which, if any, of those sectors do you feel are overstaffed?

        1. You´ve never pointed out a single instance where I was wrong. You´ve been wrong so often, you had to create a new anonymous account to reinvent yourself.

          1. Show me where you came up with 92%. No need to be rude and a moron at the same time, pick one

            1. I took the time a couple years back to painstakingly find all the numbers from the ministry of labor, added up the various positions and posted links. You’re more than welcome to go back and find the comment for yourself.

    2. I assume it was either this or austerity measure equaling laying off a large percentage of the government workforce.

  4. Vice President Otto Sonnenholzner warned us there will be hard times ahead and these changes will certainly bring them.

        1. As long as they apply, there is nothing wrong with a cliche. You seem to use the word “cliche” in the pejorative. I don’t take it that way. A cliche is a time worn phrase that became time worn due to its constant use and applicability. It certainly applies in the instant case.

            1. Only if the cliche is overused by a single writer and then, the force (but not the meaning) of the phrase can be diminished. If that is unclear, I’m saying that if I were to repeat a cliche multiple times in the same article, story, letter, etc., that would diminish the value of the meaning I was trying to convey.

            1. The implied free lunch of not having to pay for the sin of previous profligate spending. The austerity that Moreno has necessarily fomented is the price we must now pay for past policies.

  5. He was given the hardest job. I don’t think its been appreciated. I am sorry he isn’t running for re election. But maybe he needs a break from all of the stress involved in fixing the economic mess created by the Correa, who also had some positive things come out of his presidency- the improvement of infrastructure. It sounds like the changes will stimulate the economy but will make it hard for the working poor, farmers, people who have to transport for a living, to survive.

    1. He was given one of the lowest debt to GDP ratios in the western world, record low unemployment, massive brand new infrastructure projects and a growing economy. Since implementing the IMF’s plan (which he still refuses to disclose to the public), the economy has stalled for over a year, the middle class has shrunk for the first time in over a decade, billions in revenue generating public works are being privatized at pennies on the dollar and debt is now 46% of GDP.

      The IMF recipe will not “stimulate” the economy. As is the case in every country where it is implemented (without the consent of the electorate), it will be a windfall to international investors and will drive a huge portion of the middle class into poverty. If you want to see how this will pan out, just look at what is happening right now in Argentina 3 years after Macri imposed the exact same economic plan.

    2. Created by Correa? Hopefully that just made know-it-all Faulkners head explode. Correa did indeed leave the mess, & That is why he chose to flee.

      1. Calling me a know-it-all would be an insult had you bothered to point out where I was wrong.

        But you never do.

        Because I’m not.

        I don’t know it all. I just know more than you.

  6. I hope the labor law changes include an unemployment type system rather than obligatory severance…….

    1. Fear not. He just allowed the equivalent of zero-day contracts so you can just classify all your employees as independent contractors and not worry about severance, social security or any of the other hard-won protections for workers that the IMF wants him to eliminate.

      Lest we forget, nobody voted for any of this.

  7. This has been the plan all along. It’s why Moreno refused to disclose the terms of the IMF deal to the National Assembly even though the Constitution requires it.

    1. Give everyone $!000 and free everything, and drag down ANYONE actually employing humans with skill, paying the taxes, and then make sure THE GOVERNMENT sets the goal posts for where we all should stand.
      Seems sensible and VERY Harvard.
      Let’s go block and intersection if granny doesn’t comply.
      Nope Frre dumb.

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