Finance minster suggests austerity for new president

The finance minister is recommending an austere path for the new administration along with a value-added tax of 15 percent and movement toward a global income tax.

All of these are ideas that have been discussed previously. Some were even part of the Chinchilla administration’s massive tax restructuring that was knocked down by the Sala IV constitutional court.

Edgar Ayales is the minister of Hacienda or finance. He prepared this series of guidelines for the new administration to straighten up the nation’s finances. Thursday he was accompanied by Melvin Quiros of the Dirección General de Crédito Público. The minister said this five-year proposal of fiscal consolidation includes possible changes to public salaries.

Ayales recommended that the future government leaders consider increases in the average salary of public sector workers. He said pay should be adjusted to inflation and higher costs of living and that eventually the entire public sector could have a unified salary.

Much of the advice from Ayales and Quiros centered on lowering the fiscal deficit. According to the ministry’s studies and analyses the consolidation plan can cut the annual budget deficit from an anticipated 7.9 percent of the gross domestic product in five years to 3.26 percent. Currently the government’s deficit is estimated at or near 6 percent of the gross domestic product, the total of all goods and services.

The proposal was outlined in a 44-page notebook titled how to achieve fiscal consolidation. On top of salary amendments and deficit crunching, other major elements of the proposals included strengthening government entities that deal with finances and supporting more public investments. He suggested a universal income tax be active within two years.

The proposal also calls for the tax-collecting and the customs agencies to be reformed so they can become more efficient.

Despite rising international interest rates, Ayales pointed out Costa Rica’s recent investments and the now-stable U.S. economy as platforms that can catalyze either presidential candidate’s plans. “There’s a great responsibility for both parties to turn around the financial situation,” he said. “The government that comes in is going to have all the international-level resources they need.”

Once the new president takes over in May there will be six months when the new chief executive will be in direct and open dialogue with the ministry to turn around the fiscal dilemma, Ayales said.

Most of his proposals are hot button issues with some sector of society. Public employee unions are sensitive to the concept of a unified salary that would be the same for the same job categories through the executive branch.

Ayales wants to at least bring in new hires under this system. Current employees have protested the proposal if it relates to them.

Ayales is a late-comer to the Laura Chinchilla administration. He got the job in May 2012. Despite his promises to cut the deficit, the amount has climbed.

Ayales would continue as finance minister if Johnny Araya Monge wins Sunday’s runoff election for president. Araya said he would keep him on. However. Araya, who has quit campaigning but still remains on the ballot, is not the likely winner.

The expected winner is Luis Guillermo Solís of Acción Ciudadana who was tops in the Feb. 2 initial voting. The new legislature takes office May 1, and that new group of 57 is composed of individuals heavily in favor of new taxes, expanded social programs and state-run industries.  Any financial proposals would  have to get through them.

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