The Costa Rica Government brings forward its controversial tax reform despite protests

The Legislative Assembly of Costa Rica ratified on Monday by majority a controversial tax reform that will serve the Government to begin to reverse the worsening daily of their public finances. An alliance spot among the deputies pro-government and opponents of the various parties will allow the Executive Carlos Alvarado (center-left) to close by 2018 with a change of feather, although it will not generate immediate resources, it should allow the Latin american country to regain the confidence of international investors and slowing the worrying growth of the debt.

The opposition of several sectors, and the strike that kept active half of the educators in the public sector has not prevented the Executive to take forward a project that is only the beginning of a process of financial stabilization, as noted the minister of Finance, Rocío Aguilar. The Government of Alvarado faces a fiscal deficit of 7% of GDP, a debt of 54% —low in comparison with the average of the advanced economies of the planet, but high in relation to the emerging standards— and the uncertainty about the sustainability of programs that have enabled the country to tico to erect a system of social protection enviable in the eyes of other countries of Latin America. Are all disorders that could result in a cooling of the economy. Costa Rica grew by 3.2% in 2017, but runs the risk that its rate of expansion to fall below 3% this year and next year.

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that is why the Government of Alvarado, and the political and social forces that support it, including business sectors, breathed with relief to see it approved the fiscal reform, even more so after the two previous attempts —in 2006 and in 2012— fracasasen by two rulings of the Constitutional Chamber. On this occasion, the magistrates approved the project unanimously, and opened the door for legislators to ratify the favorable vote which had already issued at the beginning of October. In 2019, the project would provide earnings close to us $ 660 million, almost 1.5% of GDP.

With 34 votes in favour and 17 against —on a total of 57 seats, the Congress let the fiscal reform list for its entry into force. The first returns Supertotobet should come in the first quarter of next year, so that it will not allow to relieve the urgency of the liquidity of the Treasury to deal with the close of 2018. While helping to drive further reforms —such as public employment— which will also require the approval of the Congress, the Executive aims to attract more foreign funding in the best conditions to improve the structure and the schedule of repayment of your debt.

Higher fiscal pressure

The tax reform recently approved increasing the income tax paid by the sectors more wealthy, it taxes the income from capital and creates a figure tax, the VAT, and also force you to checkout the services sector, until now exempt. Also set limits for public spending, which happens to be subject to the economic growth, and slows down the increase of the bonus for a sector of state workers. This last point was critical for the call of one of the biggest strikes of recent decades, which began in early September with the support of numerous unions, and that still keep on foot the main guilds of the education sector in costa rica. The strike prevented the conclusion of the school year in the majority of the 6,500 educational facilities public primary and secondary schools.

For Alvarado this reform is a win, despite the low popularity attributed to the surveys: it's the first change of scale in the tax system in nearly a quarter of a century, a period of time that has widened the gap between expenditure and income, and in which the political agreements to give solution to the problem have been conspicuous by their absence. Tax reforms in 2006 and 2012, despite the approval of the Congress, clashed with the wall of the Constitution. This one passed the test. The chief judge of the court, Fernando Castillo said in late November that the judges were "aware" of the financial situation that confronts the country and that commit social aid which prevent thousands of families —21% of the population— from falling into poverty.

“As president, I have done everything in my power to protect the country from a fiscal crisis like the one we lived in the eighties. Today, Costa Rica provides a step that gives stability and confidence,” Alvarado said after the vote this Monday. The main patron saint of costa ricans also applauded the vote, but insisted on the need to put in place policies urgent economic stimulus to offset the blow because of the increased tax burden. The young representative progressive maintains a team of party Government that has enabled him to achieve the support of business to your project attorney and the rejection of the trade unions of state employees, who accuse him of surrendering to the forces of the right. Your response has focused on preventing the need for cuts in social programs that have made Costa Rica a country of human development higher than the average continental.