Tax Plan Needed Urgently, Top Officials Say

THE government’s two top economicofficials this week warned of the urgentneed to approve the much-delayed tax planstill being debated by the LegislativeAssembly.Central Bank president Francisco dePaula Gutiérrez said the plan is an essentialtool that will make the country’s economyless vulnerable to external shocks, such ashigh oil prices and rising interest rates inthe United States.Finance Minister Alberto Dent said theplan would make it possible for the governmentto stabilize its fiscal deficit andgradually reduce the amount of money itpays each year in interest payments on debtbonds.The tax plan, Gutiérrez and Dentagreed, would lay the ground work thatwould make it possible for the country tomake the most out of the opportunities thatmay be created by the Central AmericanFree-Trade Agreement (CAFTA) with theUnited States.The officials discussed these and otherissues during a luncheon organized by theCosta Rica Chamber of Commerce onWednesday to review the outlook for theCosta Rican economy during the secondhalf of 2004.FIRST proposed two years ago by acommission of former Finance Ministers,the Permanent Fiscal Reform Packageaims to increase government revenues andpermanently reduce the fiscal deficit bycreating new taxes and improving collectionof existing taxes (TT, Dec. 5, 2003).The tax plan has been studied andreformed by several legislative commissions,which have consistently failed tomeet deadlines to put the plan to vote.In February, Dent announced he wouldcut ¢72 million ($171.4 million) from thebudgets of 15 ministries and several socialprograms if deputies did not approve theplan by the end April. Deputies failed tomeet the deadline, which was extendeduntil the end of May. The deadline waslater extended indefinitely, and the FinanceMinistry went ahead with the cuts, Dentsaid at Wednesday’s luncheon.Dent, President Abel Pacheco and severalmembers of the commission attributethe delays to filibustering tactics appliedby Libertarian Movement deputy FedericoMalavassi (TT, April 16).THE tax plan is now in its final phases.The bill made it out of the legislativecommission and was transferred to thefloor of the Legislative Assembly.Deputies were given four (non-consecutive)days to issue reform motions.Motions were transferred back to the commission,which, in theory, had four days toprocess each day’s motions.However, after 40 days, the commissionis still evaluating motions pendingfrom the third day of reform motions.Dent attributed the latest delay toLibertarian Movement, whose deputiesissued 425 of the 617 motions filed. Of themotions issued by the Libertarians, 59question Article 1 of the plan, which statesthe plan’s purpose. According to Dent,most of these motions contradict oneanother.Of the last 51 motions the commissionhas studied, 50 were issued by theLibertarians. Each time the commissionrejected a motion, the Libertarians issued arequest to reconsider the motion, Dentsaid.“I invite all Costa Ricans to go to theLegislative Assembly and read thosemotions to see if in any way they helpimprove this project,” Dent said. “It’s pureblackmail. They’re putting the future ofour children and grandchildren at risk.”TO speed up the process, a majority ofthe commission’s members – deputiesfrom Social Christian Unity, NationalLiberation, Citizen Action and Costa RicanRenovation – voted to dramatically reducethe amount of time spent on each motion.Malavassi and Humberto Arce of thePatriotic Bloc voted against the measure.The commission will set aside fourhours for each party to defend the motionsit has issued. Time will be allotted proportionatelydepending on the importance ofeach motion.The commission will then set aside sixhours to openly discuss all of the motions.After that, the motions will be voted one byone without additional discussion. Twomore hours will be allotted to allowdeputies to appeal votes on the motions,Dent explained.In response to this plan, theLibertarians have threatened to file aninjunction before the ConstitutionalChamber of the Supreme Court (Sala IV).IN other news, Bank presidentGutiérrez said Costa Rica’s economyremains stable and is growing at around4% a year, as expected. Employment, hesaid, increased by about 2.5% betweenMay of 2003 and 2004.Exports have been growing steadily,imports remain relatively stable despite anincrease in oil prices and internationalmonetary reserves are higher than a yearago, he said.Despite an increase in the price of agriculturalstaples such as rice and wheat andrecord high international oil prices, inflationhas been kept under control at a rate ofapproximately 10% a year.“We aren’t seeing any worryingmacroeconomic conditions, but the truth isthe country will face challenges during thenext months that will determine the path itseconomy will take in coming years,”Gutiérrez explained. Approving the fiscalreform as soon as possible, he said, is vital,particularly now that interest rates in theUnited States will begin to rise.HIGHER international interest ratesmean Costa Rican bonds will have to offerhigher yields to be attractive, making itmore expensive for the Costa Rican governmentto finance itself by issuing bonds.For that reason, reducing the fiscaldeficit and paying down part of the debtare essential in making the country’s economystronger and more stable.Approving CAFTA was also mentionedas an important priority that standsto create additional possibilities that willmake it possible for the Costa Rican economyto continue growing.“During the next six months, the countrywill have the opportunity to take twocrucial steps,” Gutiérrez explained. “It canact on the fiscal reform and move forwardin increasing economic stability and it canapprove CAFTA and make the countrymore competitive. Costa Rica is capable ofmuch more growth and stability than it hasso far shown, but the right steps must betaken.”