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Tax Plan Dealt Severe Blow

For the second time in two years, a bill to reform the country’s tax system has  been eclared “dead” by legislators following a judicial ruling that the way it was approved is unconstitutional. If their assessment is correct, then four years of discussion, sheaves of amendments and objections, millions of colones in legislators’ salaries and ardent lobbying by President Abel Pacheco in favor of his top-priority project – which, according to proponents of the plan, would take an important step toward solving the country’s fiscal crisis and providing money for roads, schools and other needs – have produced absolutely no result.

Just as the tax bill, called the Permanent Fiscal Reform Package, appeared to be nearing the end of its long, rough road to approval, the Constitutional Chamber of the Supreme Court (Sala IV) Wednesday dealt a severe – perhaps fatal – blow to the reforms this week when it ruled that the Legislative Assembly, which approved the bill in first debate last month after approximately four years of discussion (TT, Feb. 24), violated legislative procedure in its handling of the bill.

The bill’s staunchest defenders say there’s still a chance the constitutional flaws can be corrected, but with only six weeks left in office for current legislators, it appears impossible during this administration. Even Mario Redondo, a Social Christian Unity Party (PUSC) legislator who has been the most vocal in supporting the plan, said the soonest a revised version of the plan could come to a vote would be three months.

“The tax plan fell flat on its face,” Libertarian Movement legislator Federico Malavassi – whose party’s aggressive tactics in opposition to the reforms have drawn accusations of demagoguery from other legislators, Pacheco and other leaders – told The Tico Times yesterday. “This is a restoration of the rule of law… and a rescue of parliamentary law as well.”

However, Redondo said that, on the contrary, the ruling makes it easier for radical groups to control the country.

“This resolution is unfortunate… it increases the fears we had about the lack of governability in the country,” he told The Tico Times. “It appears… that a majority of justices of the Sala IV don’t understand the reality of the legislative process.”

Familiar Objections

Though the Sala IV ruling may have come as a surprise to tax plan supporters, it touches on familiar controversies.

According to a statement from the Judicial Branch, the justices voted unanimously that the application of the 208 bis, a “fast-track” procedure designed to speed up approval for priority legislation such as the tax plan, as well as the approval of the plan by a simple majority, rather than a two thirds majority, violate the Constitution.

Both these issues had been roundly criticized by Libertarians and other tax-plan opponents, 16 of whom filed a 143-page request for review with the Sala IV after the bill was approved Feb. 16. Legislators can consult the Sala IV on the constitutionality of any bill between first and second debate; if the justices find problems with the content of a bill, those recommendations are nonbinding for legislators, but findings of unconstitutional legislative procedure mean legislators must go back, remedy the errors, and bring the bill to another first-debate vote.

Social Christian Unity Party (PUSC) legislator Rolando Laclé told The Tico Times late Wednesday that although he had not yet received a copy of the decision, a ruling against the 208 bis would mean the end of the reforms.

“If what the chamber says is that the 208 bis wasn’t applicable… that would kill the bill. It’s dead,” he said.

The Sala IV ruling also states that the assembly failed to consult banks and autonomous organizations involved in tax administration during legislators’ consideration of the bill.

Allegations of unconstitutionality in the assembly have been on the table since mid-2004, when José Miguel Corrales of the National Liberation Party (PLN) and Gerardo Vargas of the Citizen Action Party (PAC) filed motions before the chamber.

They claimed PUSC legislator Redondo, then the assembly’s president, had acted with secrecy and violated legislative procedure by implementing measures designed to speed up discussion of the plan (TT, July 9, 2004).

Other legislators, including Malavassi, followed suit with additional motions.

Redondo said his actions to reduce the time spent discussing motions on the plan was a reaction to the Libertarians’ strategy of slowing down discussion by filing thousands of motions and amendments against the plan. His efforts were the minimum needed “to make the debate viable… Waiting 20 years to go through all the motions made no sense” (TT, Aug. 20, 2004).

Apparently, justices disagreed this week, calling measures to limit debate on the plan “irrational, disproportional and in violation of the democratic principle.” However, back in 2004, they declined to rule on the motions placed before them, stating that decisions about unconstitutionality would be made after a vote took place in first debate.

Key to resolving doubts about whether the “fast-track” procedure, approved last year (TT, March 11, 2005) and a simple majority vote (29 of 57 legislators) could be used for the tax plan was deciding whether the plan contains measures that would require changing the Constitution. One section of the plan would allow citizens to file their tax information digitally, and therefore allows the tax authority’s employees to examine citizens’ files.However,Article 24 of the Constitution states that the right to privacy for written, verbal and other communications is inviolable.

After much debate, legislative leaders decided to go ahead with the 208 bis, and with the simple majority vote. If the plan is to be salvaged, they will now need to return the bill to commission and apply standard legislative procedure to allow it to reach a vote.

What’s Next?

At press time, it was unclear how the tax plan’s supporters will respond to the ruling. Redondo said no concrete decisions would be made until today at the earliest, though he feels “the project is not completely lost, and there are still possibilities of rescuing and approving it.”

However, most agree steps must be taken to resolve the fiscal crisis, with or without the tax plan – which, according to the Finance Ministry, would have generated an additional ¢200 billion (approximately $397 million) per year for the cash-strapped government.

President-elect Oscar Arias told the daily La Nación late Wednesday that the Libertarian Movement “should tell me how we’ll (fix) these roads, how we’ll give the ¢40,000 ($79.52) to poor families so they don’t take their kids out of high school, and how we’ll increase the number of police.”

He added that though he is awaiting analysis from legislators regarding whether the procedural flaws can be corrected, a new tax project is now in the works to be ready May 8, because something must be done to increase the funds to the central government.

Malavassi maintains that while more government revenue is needed, this should be generated not by raising taxes but by stimulating business growth and improving the economy.

“May Oscar Arias do something intelligent, and not pass (citizens) the bill,” he said, adding that limiting public expenditure, fighting corrupt spending practices and improving tax collection would all help as well.

The tax plan was first drafted by a group of former finance ministers in 2002 to bring Costa Rica’s taxation levels up to par with the services its government offers. Then-Finance Minister Walter Bolaños told legislators Costa Rica is “paying for developed world benefits” in health care and education “with taxation levels of delayed countries” (TT, April 4, 2003).



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