Over the last few weeks, the Fiscal Plan discussions have heated up, but mainly regarding an isolated view of the tax application and how this is expected to heal the government’s deficit. Though what else could be expected if the country is facing one financial problem that, in theory, is simple: Costa Rica spends more than what it earns. Without a doubt, public finances would find temporary relief in augmenting the tax load as this package intends. However, the current goal to get more money to cover the expenses does not address the structural problems of public finances.
What is the actual deep-rooted problem that the fiscal plan should try to solve? The national finances will find peace once three aspects are addressed: the efficiency of public spending, fiscal evasion, and the notion of State as a provider for the private sector rather than others providing for it.
The government has to increase control of its expenses. Bureaucracy expenses rose 20% during the previous administration. We have the highest deficit level in Latin America (5.2% of GDP). The Economic Commission for Latin America and the United Nations (CEPAL for its acronym in Spanish) expects a 5.5% deficit of GDP in 2012. Last October, based on the discussion of the Legislative Assembly regarding the approval of the 2012 budget, they found cases of superfluous spending, such as the extra 100 million colones budgeted in Police horse feed without proportionally adjusting the amount to the number of animals, or the 29,000 million colones destined for consulting.
In November, the National Comptroller's Office (Contraloría General de la República) published a press release reflecting tax evasion (No. DFOE-SAF-IF-06-2011). This document emphasizes that rent tax evasion reached 19% of collections out of the potential 78,000 million colones that should come in. Moreover, a 63% of taxpayers declared zero colones for the 2010 period. Other studies that the Comptroller’s office has performed indicate an evasion of 30% in sales tax. It is not surprising that this organization pleaded to the General Tax Office (Dirección General de Tributación) to improve its collection practices and its tax sanctions. Additionally, the government must understand its mission as facilitator of its population’s development and not expect its people to provide for it. However, the national practice works opposite to this. Symptoms of this include the cases of extensive procedures to set up a business, the deficiencies of clear policies for national development that accompany private businesses, and now, asking more money of Costa Ricans to finance excessive spending. The World Economic Forum confirms the government’s mediocre performance to facilitate private development in its competitiveness report for 2011-2012; in this report, it highlights our country is in the 83 position in infrastructure and the 109 in macroeconomic environment out of a 140-country list. Hindering private development is stopping the population from generating wealth and, therefore, preventing the economy from becoming stronger. In addition, it is compromising the source that generates tax money.
On the other hand, the tax burden of Costa Rica, according to Juan Carlos Hidalgo of the Cato Institute, reached 23.1% of GDP in 2008 and 21.7% in 2009. During these same years of recession, the U.S. registered a 26.1% and a 24%, respectively. The proportions are similar and demonstrate that Costa Ricans do not have low levels of taxes.
This should lead us to conclude that the government of Costa Rica does not have the moral authority to ask Costa Ricans to pay more taxes before it starts showing an attitude change in rational money management. Otherwise, it feeds an unsustainable system and obstructs the development of the private sector.
.JPG)
