Costa Rica’s government will operate with a deficit equivalent to 5.3 percent of the gross domestic product (GDP) under President Laura Chinchilla’s $109.7 billion budget proposal for 2011.
It will be the second consecutive year that Costa Rica operates with a fiscal deficit, after the administration of former President Oscar Arias allowed the deficit to grow to buffer the impact of the worldwide recession.
According to Finance Minister Fernando Herrero, the idea is to maintain social programs until revenues can return to previous levels.
“We have to consider this budget as a provisional one,” he said, “because it is not sustainable in the long term. The government can’t continue to operate with a deficit of this magnitude (for very long).”
Speaking to media representatives packed inside the Legislative Assembly’s executive offices, he said, “At this moment, (the deficit) is not a problem. In fact, it’s a benefit to the country because it allows us to meet internal demand.”
He said the gap will give the Chinchilla administration flexibility to pursue its social and security programs, such as creation of a national day care system, strengthening of existing aid programs and augmentation of the country’s police force.
The deficit will be financed by public debt, which has decreased from 41.7 percent to 24.7 percent of GDP in recent years, giving the central government a safe margin within which to “stimulate growth without threatening the fiscal sustainability” of the country. The plan is to decrease the deficit each year for the next four years, until government income is sufficient to cover all its expenses as well as service the debt.
But the country cannot go forward without a tax reform, Herrero said, as new resources are necessary to further develop the country and to meet current needs. The central government is pursuing a dual-track effort of reducing the number of tax delinquents while introducing new taxes.
“Without this tax reform, the deficit will continue (to grow) and it will become a problem for our country,” Herrero said. “We can only present this budget with the understanding that it should be accompanied by a tax reform.”
The budget now goes for deliberation to the Legislative Assembly, where the assembly’s president, Luis Gerardo Villanueva,expects extensive debate, but hopes for its approval for “the country’s welfare.”