Peru Requests Legislative Powers in Bid to Reach 5% Growth

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  • Package of measures bring together key campaign proposals
  • Government seeks to cut sales tax, boost banking competition

Peru’s new government asked Congress for permission to cut taxes and speed up infrastructure investment to meet President Pedro Pablo Kuczynski’s pledge to boost economic growth to 5 percent.

The cabinet presented a request to Congress on Thursday for legislative powers that if approved, would allow the government to rule by decree in certain areas for 120 days, avoiding potential gridlock in an opposition-controlled parliament.

Among the measures are a cut in the sales tax to 17 percent from 18 percent and a lighter profit tax for the smallest companies, according to a copy of the document on Congress’ website. Corporate tax would rise for medium and large companies, with the increased revenue going to local and state governments, it said. The move would roll back corporate tax cuts approved by the previous administration.

By expanding the tax base, the package aims to boost annual fiscal revenue by about $6 billion within the next five years, Finance Minister Alfredo Thorne told Radio Programas on Friday.

“We want to change the drivers of private investment from mining to infrastructure,” and become a more “efficient economy by increasing productivity and formalization,” Thorne said.

5% Growth

The wide-ranging package includes proposals for an amnesty on the repatriation of undeclared earnings overseas, changes to the fiscal transparency rules, the creation of an infrastructure fund and measures to help local governments settle 25 billion soles ($7.4 billion) of debt.

Other proposals seek to speed up the execution of public works and overhaul the infrastructure investment agency Proinversion and state oil company Petroleos del Peru, as well as measures related to fighting crime, corruption and expanding water and sanitation coverage.

The government also plans make it easier for foreign banks to enter the local financial system to increase competition, according to the document.

“All the measures we are proposing are needed to make our dream of a more modern and equal country a reality,” cabinet chief Fernando Zavala said in a statement on Thursday.

Political Test

Kuczynski, who took office July 28, has said the package seeks to provide a short-term boost to an economy hurt by a two-year slump in private investment following the commodities bust.

The package is designed to boost growth to 5 percent or more from 2018, offsetting slower growth in copper output, Thorne said. The government forecasts 4 percent economic growth this year and 4.8 percent next year.

Kuczynski is resorting to rule by decree to deliver on his key campaign proposals without going through Congress, where his party has 15 of the 130 seats, the smallest ever for a ruling party.

Negotiating the passage of the bill will be a test for Zavala, a former finance minister and SABMiller Plc executive, whose main task will be securing the support of the majority Fuerza Popular party.