“Costa Rica economy cannot take another year” without new taxes, president says

(Casa Presidencial / Archive)

July 31^st, 2015 (ICR News) Costa Rican president, Luis Guillermo Solis warned on Thursday that the country’s economy cannot survive another year without new tax revenue.

Solis’ urgent call for new tax revenue was not well received by opposition lawmakers in the country’s Legislative Assembly, which have called for austerity in public spending to accompany any new taxes.

Opposition lawmakers pointed to the fact that the 2015 national budget increased spending by 19% compared to 2014, even as the country’s fiscal deficit continues to soar, and that the Solis administration has stalled on calls to reform public sector wages and benefits.

Solis argued that the country can no longer bear the burden of the growing fiscal deficit and that immediate action as required to increase tax revenue.

“The economy cannot handle another year, like next one, in which looms a deficit of 6.4% (of GDP) or more,” President Solis said.

The opposition countered that if the government had not “increased the 2015 budget five time more than inflation” they would be more willing to talk about taxes.

Antonio Alvarez (PLN) said that his party has repeatedly expressed its willingness to discuss taxes since the Solis administration came to power in May of last year, if the government would take action to rein in public pensions, wages, and bonuses.

For their part, Broad Front (FA) lawmakers said that the administration should tackle tax evasion before raising taxes.

President Solis responded by saying he wants to address the issue of tax reform without preconditions.

The Solis administration is pushing for reforms to the country’s income tax along with a switch from the current sales tax regime to a value-added tax (VAT) in hopes of increasing government revenues.

Costa Rica’s Central Bank on Thursday increased its forecast for the government’s fiscal deficit for this year to 5.9% of GDP, up from its 5.7% forecast in January, and forecast next year’s deficit at 6.6% of GDP.