GOC 'WEALTH TAX' BOOSTS DEFENSE BUDGET

C O N F I D E N T I A L BOGOTA 001302

SIPDIS

SIPDIS

DEPARTMENT FOR INL/LP

E.O. 12958: DECL: 02/09/2017
TAGS: PGOV PREL PTER CO
SUBJECT: GOC 'WEALTH TAX' BOOSTS DEFENSE BUDGET


Classified By: Political Counselor John S. Creamer
Reasons: 1.4 (b) and (d)

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Summary
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1. (C) In December 2006, the GOC approved a four-year
"wealth tax" on liquid assets of Colombia's richest citizens
and businesses to boost military spending. Of the estimated
$3.7 billion in new revenue over 2007-10, the major portion
(about 70 percent) is expected to fund the domestic war
effort against illegal armed groups through investment in
Army and Police manpower, helicopters, and transport.
Remaining funds (30 percent) are for jets, frigates, and
submarines. Precise allocations are still tentative; the
Embassy is engaging with the COLMIL to adjust and align
priorities, emphasizing nationalization, sustainment, and a
domestic focus. Defense Minister Santos has explicitly
requested USG guidance on Colombian defense spending
strategies. End Summary.

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Draft Numbers; Still In Flux
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2. (C) Spending plans are not final, but the Ministry of
Defense has shared two snapshots of the evolving budget. The
more recent (February 20) is less detailed; it gives an
estimate of total anticipated revenue ($3.7 billion, up from
$3.1 billion) as well as allotments by service and allocation
between personnel vs. equipment. An earlier set of numbers
(February 1) was more detailed, indicating the magnitude of
big-ticket purchases. We estimate that 70 percent of wealth
tax revenue will go to the internal conflict, with 30 percent
devoted to perceived external threats.

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Spending Priorities
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3. (C) The Ministry of Defense's three priorities for the
$3.7 billion wealth tax are manpower, mobility, and
intelligence. The draft matrix presented February 20 by Vice
Minister Juan Carlos Pinzon showed a planned allocation of 37
percent to personnel (17 percent Army, 17 percent Police, and
three percent others) and 62 percent to equipment (21 percent
Navy, 18 percent Air Force, 15 percent Army, six percent
Police),mostly for transport. Civil affairs and social
welfare programs under the "Accion Integral" umbrella were
only one percent of wealth tax spending, with most funding
coming from other GOC ministries. Pinzon said these
allotments were final and agreed upon by service chiefs.

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Personnel Expansion
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4. (U) Growth in personnel is focused on the Army ($636
million) and Police ($629 million),expanded by 14,000 and
20,000 recruits respectively. This builds on growth during
Uribe's first term, when 60 percent of the first wealth tax
was dedicated to financing new elements -- nine mobile
brigades, five high mountain battalions, six hundred
campesino platoons, and 157 police posts. Police expansion
will further increase national coverage, which has now been
extended to every county (municipio) in Colombia. Within the
Army, the focus is to boost offensive capability with new
mobile brigades and expanded special forces training, with a
focus on border zones. Pinzon said these budgets included
costs of recruitment, basic training, and four-year
sustainment.

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Equipment Expenditures
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5. (C) Pinzon's matrix did not break down equipment
expenses, which he said were not finalized. Still, a
February 1 draft gave likely indications. In that version,
the COLNAV portion was almost wholly (96 percent) for open
water operations ($425 million and $138 million to refurbish
frigates and submarines, respectively; $72 million for sea
patrol craft),with only four percent ($6 million) for river
boats. The COLAF share was split between jets ($32 million
purchase, with $195 million for refurbishment of newly
acquired aircraft and 30-year-old existing fighters) to deter
external threats, helicopters ($192 million transport, $74
million attack) for mobility and offensive operations in the
internal conflict, and aerial surveillance platforms ($38
million). Finally, the COLAR portion was dominated by
transport helicopters ($218 million),transport equipment
($35 million),and individual troop gear ($173 million) for
fighting the illegal armed groups, but it also included
armored vehicles ($87 million) that would be of little use in
counterterrorism operations.

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Internal vs. External Enemies
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6. (C) Earlier (February 1) numbers suggest that some 70
percent of the wealth tax budget will be invested in assets
for the internal conflict, with 30 percent destined to
address perceived external threats. This rough estimate
counts all personnel as serving the internal war effort,
along with helicopters, transport vehicles, river boats, and
individual troop equipment. Assets counted as targeting
external threats are jets, frigates, submarines, and armored
vehicles. Defense Minister Santos told A/S Thomas Shannon on
January 30 that his aim was to "buy the minimum" in terms of
capital assets. His decisions would not be guided by worries
over Venezuela or Ecuador. He reiterated his earlier request
to Ambassador Wood that the U.S. "help in evaluating what we
really need from my military's wish-list."

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U.S. Guidance and Concerns
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7. (C) Pinzon said the Ministry's budgeting process would
continue for the next two to six months, including
consultations with the U.S. and the public (the latter via a
"Monitoring Commission" led by prominent businessmen).
Echoing Santos, Pinzon asked for U.S. "technical advice" on
capital spending. With Embassy NAS and Milgroup, Vice
Minister Pinzon agreed to organize service-specific working
groups to align plans and priorities. NAS has voiced concern
over the lack of any "nationalization" component, i.e.
gradual Colombian assumption of costs now paid by the U.S.
This will be revisited in pending meetings between Pinzon and
INL. Milgroup plans to seek reassurances of sufficient
budgeting for sustainment, as well as to stress the need to
focus on the internal conflict.

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Tax Mechanics
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8. (U) The "wealth tax" ("impuesto al patrimonio") applies to
about 50,000 individuals and corporations, and levies a 1.2
percent tax on liquid assets valued over three billion pesos
(about $1.35 million.). Deductions are allowed for shares
held in government entities and the value of a personal
residence up to about $100,000. Projected revenues of eight
trillion pesos ($3.73 billion) from 2007-10 will provide a
boost of 15 percent to the base GOC defense budget forecast
of around $25 billion.


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Table 1: Wealth Tax Allocation (2/20/07 Draft)
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($ million) (2230 pesos / US$)

Service Equipment Manpower Total
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Army 574 636 1,211 (32%)
Police 232 629 861 (23%)
Navy 766 69 835 (22%)
Air Force 679 51 730 (20%)
Joint Staff / misc. 57 - 57 (2%)
Accion Integral - - 34 (1%)

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Totals 2,309 1,385 3,728

(62%) (37%) (100%) (100%)


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Table 2: Equipment Expenditures by Service (2/1/07 Draft)
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($ million) (2230 pesos / US$)

Service /Item Expenditure
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COLNAV
- Frigates refurbish 425
- Subs refurbish 138
- Sea patrol craft 72
- Coastal boats 18
- Riverine boats 6
- Other 5
Subtotal - COLNAV 666

COLAF
- Jets refurbish 195
- Jets new 32
- Transport helos 192
- Attack helos 74
- ISR platforms 38
Subtotal - COLAF 532

COLAR
- Transport helos 218
- Individual equipment 173
- Armored vehicles 87
- Transport equipment 35
- Multipurpose aircraft 5
Subtotal - COLAR 518

Total equipment purchases - all services* 1,715

* (Earlier draft; not equal to Table 1 equipment total.)

DRUCKER