In view of the situation that the country has been facing with a growing fiscal deficit, I allow myself to make some proposals on how to face it and that it is not only with new taxes that this situation can be resolved. It is necessary to clarify that said deficit occurs in what is the Central Government and that it is managed through the National Budget.
The concept of fiscal deficit, budget deficit or public deficit describes the situation in which the expenditures made by the Central Government or other public entities in a given period, usually one year, exceed their income. A deficit of 5.2% of GDP was determined for 2016. In 2017 it closed with a deficit of 6.1%. 2018 is expected to close with a deficit of 7.2%. It is necessary to point out that the fiscal deficit has been occurring for several years. Although the previous government did not collaborate much to resolve that situation.
It is necessary to carry out an analysis of public finances, especially with regard to the Central Government, which has a significant and almost unmanageable deficit, given that nearly 46% of the National Budget is financed with credits and even current expenditure is financed. Likewise, 33% of the National Budget is destined to the payment of internal and external debt. In Costa Rica part of the spending has always been financed with debt, but this is the first time that the amount exceeds 50%, given that by 2019 53.5% of the national budget will be financed with debtand 46.5% with taxes. It is important to point out that 41% of the expenditure of the National Budget is destined to pay interest on the debt. It is not possible to postpone the measures that must be implemented to resolve the situation of the Central Government fiscal deficit. It is necessary to take the pertinent measures to clean up public finances in order to reduce the fiscal deficit, aware that there are two aspects, that of income and that of expenses. To enjoy sound public finances, secure sources of income, especially current income, are required. There must also be a clear and simple fiscal policy, especially based on direct taxes such as income. The measures should not be in relation to income but also in expenses, to have a manageable fiscal deficit.The measures that can be implemented in relation to expenses can be:
- The restructuring of the public sector must be carried out, which with 321 entities and 900 programs, has little agile action and the adequate results are not achieved for the better development of the country. It should be defined on the salary situation of the public sector, and establish a law of public employment that establishes the single salaryand eliminate the substantial differences in wages that are paid by the public sector, there are currently more than 1,300 officials who have salaries ranging from 3 million to 20 million. The amount of privilege pensions should be limited. It had been proposed since 2014. It was applied to the Treasury pension scheme. That of the Judiciary and other special regimes that exist are missing. Teaching staff, it seems to me that it has already put a cap on pensions. The creation of places should be limited. Except for highly qualified cases in education, security and health, the purchase of luxury or expensive vehicles should be eliminated, travel abroad should be restricted, advertising and advertising expenses and protocol expenses should be reduced. Carry out an analysis of what is paid for renting buildings and see if those rentals are necessary.Analyze spending on computer programs and equipment and other equipment. In order to determine their need and possibility of postponing some of these expenses, credits must be renegotiated for internal and external debt to achieve more favorable conditions on the payment of interest and to reduce the amount of amortizations. The possibility of reforming the Constitution should be studied. Policy to decrease the contributions that are granted to the Judiciary, to the Universities and Municipalities, so that they are in accordance with the situation of public finances. Transiently renegotiate the contribution that is granted to higher education through the FES, so that a the most reasonable amount to the country's economic situation. Transiently renegotiate the contribution to the Judiciary that is established in the Political Constitution,and to make that Power more austere in carrying out its expenses. Do not allow current expenses to be financed with financing income in the National Budget. This is contrary to what is established in Article 6 of the Law on Financial Administration and Public Budgets.
In relation to income, measures such as:
- Reform the income tax, and establish the concept of global income, so that everyone really pays according to the level of income they generate. Because it is a direct tax, it affects less people with low income levels. Reform the sales tax and transform it into the value added tax. As it is an indirect position, analyze very well if they record all the services and education, since it can bring more poverty and social inequality, face more drastically tax evasion and reduce it significantly. Efforts have been made. However, there is still much evasion. According to studies carried out, evasion represents between 5% and 7% of GDP. Eliminate the specific destination of some income,Establishing resources for a specific purpose or giving a specific destination to part of the resources of the national budget, goes against an adequate budgeting technique or limit the amount of these, according to the availability of resources and that they are not increased in a sustained way. exemptions and do not grant more, so that the collection of current income is not affected. Improve the collection of income tax, sales and other taxes. For this, a good tax collection system is established, establishing a special contribution to pay the debt by public entities that have a free surplus, including public companies, for a period of three years.according to the availability of resources and that they are not increased in a sustained way. Eliminate exemptions and do not grant more, so that the collection of current income is not affected. Improve the collection of income tax, sales and other taxes. For this, a good tax collection system is established, establishing a special contribution to pay the debt by public entities that have a free surplus, including public companies, for a period of three years.according to the availability of resources and that they are not increased in a sustained way. Eliminate exemptions and do not grant more, so that the collection of current income is not affected. Improve the collection of income tax, sales and other taxes. For this, a good tax collection system is established, establishing a special contribution to pay the debt by public entities that have a free surplus, including public companies, for a period of three years.Establish a special contribution to pay the debt by public entities that have a free surplus, including public companies, for a period of three years.Establish a special contribution to pay the debt by public entities that have a free surplus, including public companies, for a period of three years.
It should be borne in mind that currently more than 92% of the national budget is devoted to public debt, wages, and transfers, so that a very low percentage remains for investments, materials and services.
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Lic Bernal Monge Pacheco
Consultant
