Caribbean & Central America - December 2005 (ISSN 1741-4458)

The Asociación Nacional de la Empresa warned the government that there was a limit to the amount it could pump up current spending. The private sector points out that the government is spending the extra income generated by the tax reform rather than using the money to close the fiscal deficit. Claudio de Rosa, the executive director of the Asociación Bancaria Salvadoreña, said that the government had to be sensible because the tax reform was aimed at reducing the fiscal deficiT. According to finance ministry figures, the fiscal deficit is still at 3% of GDP, despite a 25% increase in income tax. Current spending, on wages, running costs and communications had increased by 10%. The second phase of the tax reforms starts in 2006 when more goods and services become liable for Value Added Tax. The second phase adds to the private sector's costs by increasing compliance costs in an effort to cut down on smuggling.

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