Rocío Aguilar, head of the Treasury, regretted that the tax reform continues to drain in Congress and assured that each colón that is subtracted from the text must be cut from what the State invests.
The Minister of Finance, Rocío Aguilar Montoya, no longer lowers the tone of what is currently happening with the process of the tax reform: the collection projections do not stop collapsing due to the changes made by the legislators in the text and the situation forces to think of less than encouraging scenarios, such as abrupt spending cuts, he claimed.
Aguilar’s perspective is clear: if the deputies do not reverse some of the changes they recently applied, with which they reduced the scope of the fiscal plan, the resources will have to be compensated by abruptly cutting state investments. In this regard, it does not foresee closures of institutions, but it does provide for budget or investment “rearrangements” that will be “painful. He even mentioned the possibility of “lowering the number of employees.”
Only this Wednesday, the deputies exonerated the basic basket and private education services from the Value Added Tax (VAT), items that were going to be taxed at 2%, and which together subtracted 13% from the project’s collection goal.
Also read: Deputies cut 13% of the intended income with the fiscal plan in a single day
This decrease was added to other changes that had already subtracted at least another 10% of the estimates, which were made when the last draft of the document was negotiated with the National Liberation Party (PLN) and the Christian Social Unit (PUSC).
The goal of the initial plan was to collect 1.9% of GDP (¢ 623,000 million), of which at least a quarter fell with all these measures. The outlook is so bleak, according to Aguilar, that she even envisions burying the project as a possibility, because if it continues to drain, it would be necessary to analyze “if it makes sense to continue,” she said.
The hierarch attended to few media, this Thursday morning, while advancing through the corridors of the Legislative Assembly, where she arrived just 24 hours after the deputies approved the strongest exonerations of the project and spoke about specific issues:
The cut in collection expectations: “What this would do is break the balance that was originally being sought, which was a set of income measures and another set of spending measures to achieve better debt management, which is the most serious problem we have. If we do not achieve it with new income, we would have to think about the ‘plan b’, which we always wanted to avoid. We are talking about seeing which items of (state) spending will have to be lowered to compensate for the difference (between income and expenses) ”.
Compensate by clipping: “The most important issue is to prevent Costa Rica from continuing to increase debt levels as it has done in recent years. If that is not achieved with the project, it will have to be compensated either by reducing transfers, making changes in remuneration, we will have to lower the number of employees, well … The issue must be closed, we cannot leave this problem to the next generations ”.
“Today we are paying higher rates (of indebtedness) for the delay in decisions. We see a greater deficit every time, we see our debt growing and here, if that option we saw is not achieved, which was more balanced although it was not going to solve the problem immediately, the adjustment will have to be done elsewhere and we have no other side more than the expense ”.
Institution closure? “I would not talk about the closure of institutions, what I would say is that we would have to rearrange spending and here the issue is that it should be done, and do it with pain. It is not the same to be able to solve the deficit and the debt that we have today with a balanced project, than to do it without it ”.
Diminished reform: “What we forget, in a way, is that if there is no reform, the alternative scenario is not better or good for anyone. It is not good for citizens, it is not good for the provision of services, to have access to sources of financing at rates in accordance with the country ”.
Remove taxes from the basic basket: “It is not only a question of returns. Beyond income, there is how to have a tax system that allows control of evasion. When we give up the basic food basket, deep down we favor evaders and the upper classes. So what do we really stand for? We criticized evasion levels all the time, but that was the instrument par excellence to control it. The State has mechanisms and has had mechanisms for years, which are all social programs, to return investment to the lower classes ”.
Group pressure for exemptions: “All the groups in this country have participated in the different negotiations, all the groups have asked for different special concessions. They are all convinced that there has to be reform, but that since they are a little different they should have a different treatment ”.
Broken agreement with PLN and PUSC: “The agreement that in theory we had was not satisfied for whatever reasons. The replacement text collected that balance, it was not whimsical, it was the product of negotiations, but precisely for that reason it is surprising that less than 24 hours later we began to drain it. A decision will have to be made on whether it makes sense to continue with a text that is going to drain away, or what the other option will be because the problem has to be solved ”.
Start again? “It will depend on how much more is drained. The project originally yielded 1.9% of GDP, then we reached 1.7% with this replacement text, then we lowered it a little more and what happened yesterday makes it worth asking ”.
Stake out the path
The initial idea of the Treasury was to achieve the collection of ¢ 623,000 million for finish filling the gap that exists between expenses and income (not counting interest) with reforms to public employment, institutional modifications and spending restraints, a kind of balance that now —with the reduction in income projections— will have to be concentrated on the cuttings.
The gap that is being filled reached 3.1% of GDP in 2017, a figure that will surely have grown at the end of this year, forcing the country to acquire greater debt.
From 2008 to the present, Costa Rica doubled the weight of its debt in relation to GDP, going from 24% to 50%, something that it already has an impact on local rates and on cutting resources for investment.
Along with the fiscal project, the Treasury had announced that it would promote stronger spending reforms; changes that now should be accentuated more, according to the head of the Treasury.
The deputies could still reverse their exonerations through revisions and reiterations of proposals; however, they have shown no signs of wanting to try.