Finance ministry comes out with a grim report on nation’s balance sheet

Generous public employee salaries, legal obligations, mandatory payments and weaknesses in income have resulted in increasing expenses, the Ministerio de Hacienda said Monday.

The ministry said that the country still was on track to have a budget deficit at the end of the year equal to 6 percent of the country’s gross national product. That will happen unless there is tax reform, the ministry said.

The report, covering the first three months of the year, said that the deficit already was 1.5 percent of gross national product.

Tax income has increased, the report said, but the biggest increase was in sections of the economy that are either fully or partially exempt from sales tax.

Collection of import duties are up, in part because of the stronger dollar which reflects in the price of imported goods, the report said.

Sales tax within the country and fuel taxes have shown less growth, said the ministry.

The country is obligated to make certain payments, such as the constitutional provision for public education and also for security. The extra expense of a national election also is reflected in the national expenses, the ministry said.

The estimate was that expenses are outstripping income by about 8.5 percent.

Edgar Ayales, the finance minister who is leaving office in two weeks, said without urgent changes the annual deficit and the public debt will be unsustainable in the medium and long term. He noted that changes in the salary structure of public employees and improvements in tax collection were vital. He called for fiscal consolidation without giving details.

President-elect Luis Guillermo Solís has said that he would not approve new taxes during the first two years of his term in office. However, other members of his team have suggest that there should be changes in the tax structure. Solís supports improving collection.

Efforts at tightening up tax collection have not been successful in the past. And when lawmakers pass a new tax, citizens take every step possible to avoid it.

A tax on corporations led to a wave of responsible parties walking away from the entities and leaving corporations owing sums of money to the government but with no one responsible to pay them.  The luxury tax on upscale homes also has not brought in the amount of money lawmakers predicted when they passed the measure.

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