What will the administration do to stem red ink?

The year opens with President Laura Chinchilla in México with her husband and son and with lawmakers on vacation until Friday.

Meanwhile, the national deficit continues to increase.

The executive branch was counting on some quick taxes to offset the unbalanced national budget.

One got legislative approval last week. Expats and others who own corporations will have to pay either $354.50 for an active entity or half that for an inactive one. President Chinchilla signed the tax into law a week ago, and it takes effect in three months.

The amount increased automatically from about $313 even before the ink was dry.

There is a catch. Like many Costa Rican taxes this one is dedicated. That is it is specifically directed to certain uses. In this case, the beneficiary is the Ministerio de Gobernación. Policía y Seguridad Pública. Not a single colon goes to offset directly the national deficit. Of course, the executive branch may drastically reduce security funding in future budgets now that the corporate tax is paying some of the bills.

The security ministry will be going on a buying spree that includes 17,000 pairs of boots, 127 pickups, 562 police radios and 140 computers. Still lacking is a comprehensive anti-crime strategy that
Ms. Chinchilla promised in her campaign.

Lawmaker Luis Fishman, a former vice president, frustrated the plans of the executive branch when he challenged in the Sala IV constitutional court the use of the legislative fast track for the value-added tax proposal. Consideration of that tax probably will be longer now because the executive branch tried to make the bill move quicker. Court officials think that magistrates may take from a year to 18 months to resolve the constitutional question.

That means the Chinchilla administration probably will not see a colón from the proposed tax even if it is passed eventually. Ms. Chinchilla has just two more years in office.

The constitutional question is can legislative rules stifle debate, which is the aim of the fast-track procedure. Meanwhile magistrates have ordered lawmakers not to take a final vote on the tax proposal until the constitutional question is resolved.

They can discuss the proposal under the limited debate of the fast track proposal, and they can take an initial vote. But if magistrates find in favor of Fishman, lawmakers will have to do it all over again.

Meanwhile, some of the legislative support for the measure is eroding despite a coalition between the partidos Liberación Nacional and Acción Ciudadana. Public sentiment is beginning to be heard although there are hardly any serious alternatives.

The Chinchilla administration has come under heavy criticism for not having a backup plan in case the tax proposal fails. This so-called Plan B does not exist, according to the president. Union leaders are afraid that it does. They see salary cuts and layoffs in the future.

The executive branch sees the possibility of higher international interest rates that will cause more red ink. Nearly half of this year’s national budget is borrowed money.

Despite the government’s financial predicament, the colon is holding its value against the U.S. dollar, and Costa Rican bonds still are marketable outside the country.

The proposed value-added tax is estimated to raise some $500 million each year in new taxes because it covers activities not now taxed, like professional services, tourism guides and private education. Critics point out that the Ministerio de Hacienda has been playing let’s make a deal with various commercial sectors. Tourism operators were promised a phased-in tax. Private school tuition was knocked down from a 14 percent tax to 2 percent. The critics say the tax would raise more like $400 million, if that.

Ms. Chinchilla would need more like $1 billion to balance the budget and even more to reduce the national debt.

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