Six-year deficit fix proposed by finance minister

The finance minister said Wednesday that the country’s annual budget deficit could be eliminated in five to six years.

The entire deficit, the total of repeated shortfalls by the central government, is $5.6 brillion or about $1,321 for each person living in Costa Rica.

The finance minister, Edgar Ayales, said that to do this new taxes will be needed, including a value-added tax to replace the current sales tax, and a review of current tax exemptions.

The minister was speaking at his first press conference after returning from a heart operation in the United States. He looked chipper. Although he couched nearly all his comments as conditional due to the Feb. 2 elections, he is a leading candidate to stay in the job if Johnny Araya Monge, the front runner, wins.

One step is about to be taken. The minster said that shortly President Laura Chinchilla will issue a decree that is designed to cut down on smuggling. He cited alcohol, cigarettes and even kitchen appliances that would be targeted by the decree. His ministry also includes the customs agency.

Ayales also said that his staff was ready to prepare proposed legislation once voters choose a new president. The project could face a delay if there is no clear winner Feb. 2 That means there would be a runoff between the top two finishers in early April.

The staff at the Ministerio de Hacienda created a 39-page powerpoint display so that the minister could outline the extent of the country’s financial problems. The current national budget consists of more than 50 percent borrowed money.

One step, according to the minister, is what he called a mechanism to guarantee financial responsibility by the central government, the courts and the Asamblea Legislativa. He also suggested that no expenditure should be approved until there was a source designated to pay for it.

He also was negative about the country’s many dedicated taxes that go to special causes. There also are automatic increases written into law. This basically dictates the budget, he noted. He called for more discipline in financial matters.

The ministry is in the process of what it called a national dialogue on taxes. This basically is a series of meetings with various economic sectors to discuss solutions.

President Chinchilla tried to have the legislature enact a sweeping set of new taxes, including the value-added tax. But the Sala IV constitutional court ruled that lawmakers failed to follow the rules, and the president backed off, in part because of growing public discontent with the measures.

Although Ayales said he sought a way to keep lawmakers from spending money they did not have, a reader has noted that the Costa Rican Constitution already contains a clause that prohibited deficit spending. The central government has been able to circumvent this by favorable court rulings and by creating multiple budgets.

The deficit grew 5.4 percent in 2013 under theĀ Chinchilla administration. That is a record for recent years. These annual shortfalls are what the minister seeks to curb.

About 30 percent of the annual budget is eaten up by interest on the money borrowed to cover years of deficits.

The minister also suggested reducing the social charges that businesses must pay as a stimulus. He cited the experience of Colombia in doing this. The lost money would be made up with taxes elsewhere, he said.

Ayales also noted that growth last year was greater in sectors that are not subject to taxation, like free trade zones and certain exports than those sectors that are taxed. Ms. Chinchilla had proposed letting municipalities tax industries in free trade zones.

He also suggested that the media could provide support to advance the tax plan. He said that he wanted the proposals to be consistent with the country’s responsible environmental stewardship. And he said that there should be better financial administration and transparency.

Although the sweeping tax package did not become law, expats have had to deal with a new tax on corporations and a tax on so-called luxury homes.

There is a new $7 tax on travelers leaving the country at various land border crossings. The minister said that his office had received complaints that the tax was not being collected but he did not appear to know much more.

The tax was supposed to go into effect before Christmas, but expats continually report different experiences at the borders. In most cases they say immigration agents tell them the tax is not yet in force. One said the date of Feb. 1 was suggested. One problem is the lack of machines to pay the tax at the border.

Ayales asked an aid to look into the situation, but the ministry continually insists that the tax is in force and being collected, something that clearly is not the case. Ayales was hospitalized when the tax supposedly went into effect. The country lost millions by being unable to enforce it during the Christmas rush.

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