Updated January 30, 2017 at 12:00 am
From the macroeconomic point of view, the new project of setting would be practically zero, unable to consolidate public finances and control the growth of debt
The tax proposal is undermined not solve the structural problems of the public expenditure, and excludes a project to rationalize the bonuses to salary and other perquisites
to Approve the draft tax reform, which considered the Government of the Republic and several legislative fractions –PLN, PAC, FA and deputies of other fractions-legislative– would be an act of total irresponsibility. A number of considerations economic, political, and social you can come up with to discredit him.
The first and perhaps the most thoroughly, is that it is insufficient to solve the fiscal problem. The fiscal deficit projected for this year by the Central Bank is an estimated 5.9% of GDP and will reach 6% of GDP in 2018 according to the programme, macro-economic, while the project of fiscal reform light just would be a 0.6% of GDP, equivalent to only ¢169.000 million. In the original draft submitted by the Ministry of Finance estimated a revenue of 2% per annum (¢560.000 million), which would be supplemented with other spending reductions by 1.25% of GDP, much of which, apparently, has quit the government, mainly related to the salaries of public servants.
From the macroeconomic point of view, the new project of setting would be virtually nil, unable to consolidate public finances and control the growth of the debt. The international rating risk probably identify as an imitation of tax reform, unable to improve the ratings recently downgraded.
The International Monetary Fund also considered that reform is absolutely insufficient to correct the imbalance. In the conclusions of the latest annual report (art. (IV) in march 2016, the IMF mission has defined in detail the settings that should be done Costa Rica and the corresponding figures. It is considered that "the trend of tax is unsustainable in the long term. Without fiscal reform, the fiscal deficit would represent a 9% of GDP in 2021, and the public debt would reach 70% of GDP". To avoid the explosion of the deficit and ensure the sustainability of the debt proposed to make an adjustment equivalent to 3.75% of the GDP, divide it in increased taxes (reforms to the laws on income tax and converting the sales tax into VAT) of 2.5%, and 1.25% of GDP in reduction of expenditure. As can be seen, the project of reform waned would be very far from meeting the requirements of the IMF.
What would be the economic consequences of not addressing properly the fiscal problem? Some we have already identified in the editorial above: it could raise interest rates in the medium term as they go adding to the problem, although short-term Finance will be able to convince the public institutions and pension funds to purchase bonds tax interest rate "agreed" between the parties, without pressing much on the financial market private. You could "park" the deficit temporarily in the surplus from the institutions, but without any substantive solution.
The tax proposal is undermined not solve the structural problems of the public expenditure. Excludes the project to rationalize the bonuses to salary and other perquisites of the regime of public servants, originally submitted by deputy Sandra Piszk, to confront, precisely, one of the main triggers of expenditure. That imposes, in turn, a serious limitation to the social programs in both there is the possibility of being expanded, and, also, the public investment needed to generate jobs and improve productivity. The increased interest expense would absorb ever more resources, to the detriment of other needs.
Another of the defects of the tax reform limited is its inability to contribute to control inflation and stabilize the exchange rate. The inflationary effect of deficit spending increasing is occur by two pathways: first, the volume of spending expansive and desfinanciado would mean an increase in aggregate demand, with direct effects on inflation and the deficit in the balance of payments. This shortfall has been financed by capital inflows but, if the perception of investors changes in a situation finance unsustainable, the impact would be in the type of change and, later, in imported products and, consequently, in the consumer price index (CPI).
The second effect would be the reduced ability of the Central Bank to control the inflation within the set targets of a 3% (plus or minus a percentage point). We have pointed out on other occasions that the gap of the product (real growth below average) has been closing, so that monetary policy should eventually become more conservative, with interest rates more in line with inflation scheduled. But if the fiscal situation deteriorates and tap the interest rates and the fiscal deficit continues to grow, the macroeconomic policy face the old dilemma of higher inflation or lower economic growth. In contrast, a fiscal reform that is well-balanced, which favors investment and control current spending, it would be very favorable to increase economic growth.
Finally, it is regrettable opportunity lost. In Costa Rica it is politically very difficult to pass tax reform and tax relief, the natural antibodies that they produce. Why, then, miss this valuable opportunity to pass a reform bill that even reaches the category of mediocre? It makes no sense.
No comments:
Post a Comment