18JUN25 'Seven out of every ten tax dollars goes to pay the salaries of the Central Government bureaucracy
June 18, 2025 | La Hora-

📈"Between 2020 and 2024, spending on salaries by the Ecuadorian Central Government grew by more than $1.2 billion, representing up to 70% of tax revenue. This is madness!!

Ecuador central government's salary expenditure rose from $8.592 billion in 2020 to $9.862 billion in 2024, an increase of $1.27 billion in five years, according to data from the Fiscal Policy Observatory. The government redundant bureaucracy alone employs more than 490,000 people.

This salary expenditure figure does not include local governments or public companies and represents increasing pressure on public finances already burdened by deficits and arrears.

On average, central government salary spending has increased by $254 million annually. In addition, between 2020 and 2024, a total of $2.095 billion was allocated to pay personnel linked to investment projects alone—another $419 million annually, on average.

For José Xavier Orellana, a former McKinsey & Co. advisor and economic consultant, this phenomenon is exacerbated by the fact that payroll spending increases automatically, even without hiring new employees. "The payroll grows without you hiring anyone: $300 million a year," he says. This is due to seniority levels, bonuses, and automatic seniority adjustments.

Daniel Noboa's government has implemented measures to increase tax revenue—such as eliminating the diesel subsidy for large tuna vessels, increasing electricity rates, and increasing taxes on the mining sector—but Orellana believes the structural imbalance also requires spending control.

Faced with this situation, he anticipates that the government "will go all out" to close the fiscal gap, including a new tax reform planned for the 2025-2026 period. However, he warns that there are also ways to save without raising taxes.

McKinsey & Co. has a study that estimates savings of between 15% and 28% in public procurement. In Ecuador, this amount exceeds $6 billion annually, equivalent to a potential savings margin of between $900 million and $1.7 billion annually if overpricing, inefficient processes, and poorly negotiated contracts are eliminated.

Added to this is a study by the Inter-American Development Bank (IDB), which reveals similar losses in the execution of public works due to poor planning, oversizing, and corruption.

Economist Andrés Rodríguez emphasizes that this burden is difficult to sustain, even more so when social demands for more personnel are mounting in sectors such as health, education, and justice, or in oversight bodies such as the Comptroller's Office or the Mining Regulation and Control Agency (ARCOM).

According to figures from the Ministry of Labor, the number of public employees in the Central Government, not including local governments or state-owned enterprises, amounts to 490,946. The salaries of this entire workforce represent between 60% and 70% of all tax revenue each year. Simply put, between 6 and 7 dollars out of every 10 Ecuadorians pay in taxes are used to cover these salaries alone.

https://www.lahora.com.ec/economia/Sueldos-publicos-del-Gobierno-Central-suben-1.270-millones-en-cinco-anos-y-presionan-deficit-fiscal-20250617-0033.html

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