(Bloomberg) -- Colombia needs to boost tax revenue to finance greater social spending while lowering the nation’s high debt levels, according to incoming Finance Minister Jose Antonio Ocampo. 

While acknowledging that a plan to raise revenue by 50 trillion pesos ($11.8 billion) with a tax reform is “ambitious,” Ocampo said in an interview with Blu Radio Tuesday that the new government will try to get as close as it can to that target. 

“There are immense social demands,” Ocampo said, pointing to high levels of poverty and hunger affecting a large part of the population. “That requires significant additional social spending, while at the same time it is necessary to continue with the fiscal adjustment.” 

In order to comply with the nation’s balanced budget act, or fiscal rule, the government needs to cut debt levels to 55% of gross domestic product from more than 60% currently, he said.  

Ahead of his swearing in on Aug. 7 as Colombia’s first leftist leader, President-elect Gustavo Petro has been seeking alliances with political parties to advance his agenda which includes increasing welfare payments for millions of poor Colombians while transitioning the economy away from its dependence on oil and coal exports. Getting a tax bill passed will likely be the first test of how much backing he’s able to garner in a divided Congress.

Gradual Transition

The government will seek to lower corporate tax exemptions and impose higher taxes on Colombians who earn more than 10 million pesos a month, Ocampo said, adding that the details of the bill are still being discussed. The plan also includes levies on high pensions and wealthy individuals, as well as getting rid of days when value-added taxes aren’t charged, he said. 

Given a high inflation rate -- which is hovering near a two-decade high of more than 9% -- the new government will seek to increase subsidies for the most vulnerable households, Ocampo said. 

He reiterated that the nation’s transition away from fossil fuels needs to be “gradual.” 

While his comments seemingly contradict previous statements from Petro that his government will halt oil exploration, they are in line with investor expectations that Ocampo will help temper unpredictable economic policies under the new government. Oil and coal account for about half of Colombia’s sales abroad. 

“It has to be a gradual adjustment,” said Ocampo. “Colombia can’t reduce its revenue from oil exports in the short term if we are unable to increase non-oil exports.”

©2022 Bloomberg L.P.