Thanks to improved tax collection that helped boost revenues by almost a third, the Costa Rican government finished 2007 with a budget surplus for the first time since the 1950s.
The surplus amounts to $178 million, about 0.65% of the year’s estimated gross domestic product (GDP). At the same time, though overall government spending in 2007 declined in real terms, new programs increased social spending.
Thelmo Vargas, a former finance minister and current consultant with economics think tanks Academia de Centroamerica and Econanalisis, called the surplus a “good sign” for foreign investors.
“Among other things, the good financial situation has been able to lower the public debt-to-GDP ratio, which is an element taken into account for estimating country risk,”Vargas wrote in an e-mail.
While the country’s healthy economic growth has had an effect on collection of tax revenues, another main driving factor has been the dramatic increase in tax collection, Vargas said.
Improved customs and import tax collection through the Information Technology for Customs Control (TICA) program, as well as better record keeping with new computer systems, helped increase the total revenue collected to $4.15 billion, a 28.4% increase over 2006.
Customs revenue accounted for 36% of the total and increased by about 30%, while income-tax collection posted the sharpest increase of 36%, to a little over $1 billion.
Sales-tax collection grew a little slower relative to those numbers, posting a 25% growth to $777.8 million.
As far as spending the bonanza, the biggest increase was in the “other expenses” column of the account book, which swelled 67% to $832 million and easily dwarfed all other categories except for salaries.
The Finance Ministry said in a statement that “other expenses” included sizable outlays to the National Roadway Council, to the country’s municipalities, to educational programs and to President Oscar Arias’ Avancemos program, which offers financial incentives for families to keep their children in school.
Even with the extras, government spending overall only increased by 8.56%, which in real terms marks a spending decrease, considering that inflation for 2007 finished off at 10.64%.
Vargas said he expected the government to use the surplus to continue to increase spending on social programs. Although the surplus is sustainable, he said he believes that improvement of the country’s infrastructure and the final passage of the bills to put the Central American Free-Trade Agreement with the United States (CAFTA) into effect are crucial to keep the gravy flowing.