In August sales tax receipts were 15% higher in real terms than for August 2010, the government reported. This helped the fiscal deficit which was held at 2.9% of GDP for the first eight months of the year.
The double digit jump in sales tax revenues in August was the biggest month-on-month rise since June 2008. Sales tax receipts for the month came to C$48bn (US$94.3m).
In the first eight months of 2011 the government ran a fiscal deficit of C$584bn (US$1.13bn). This is equivalent to 2.9% of GDP, so rather better than expected. The government is expecting a deficit of 4.8% for 2011 which would mean that deficit at the end of August should have been 3.1%.
The tax revenues figures somewhat puzzled the finance minister, Fernando Herrero, who said that he did not understand why sales tax revenues were growing more slowly than import tariffs.
Francisco Villalobos, the director general of tax collection, said one reason for this was a new law, introduced in August, which, in an effort to clamp down on the informal economy, allows tax breaks for credit or debit card purchases. Another advantage of electronic money purchases is that 6% of the sales price is immediately handed over to the finance ministry, improving the ministry’s cash flow. The tax office has also restarted its scheme of shutting down businesses which do not provide sales invoices.
The improvement in sales tax receipts has been boosted by the economy’s decent growth which is running at about 4% for 2011, according to figures from the central bank. The IMF is also pencilling in 4% growth for the year.
Lower interest rates: The central bank lowered interest rates on nine month money again in September. The bank cut the rate by 0.25 of a percentage point to 5.90% a year. One year money cost 6.45%, also down 0.25 of a percentage point. The central bank’s move goes against what is happening on the interbank money markets where commercial banks have been pushing up rates from 7.25% to 7.5% because of a lack of liquidity.
Inflation: In the year to August, consumer prices rose by 5.25%, comfortably inside the government’s target of 5% plus or minus 1%. In August, consumer prices rose by 0.26%, a bit less than the 0.34% monthly rate of July.
