Caribbean & Central America - August 2015 (ISSN 1741-4458)

Solís warns of need for higher tax revenue: While President Luis Guillermo Solís has indefinitely postponed discussion of public sector salary reform (see related article) on 31 July he argued that new sources of government income were urgent. The country could not cope “one year more” without the legislative assembly approving new taxes. Solís made his appeal ahead of a series of extraordinary sessions of congress in which the executive will have the authority to determine the agenda of legislative bills up for discussion.

President Solís argued that the country can no longer bear the burden of the growing fiscal deficit and that immediate action was required to increase tax revenue. “The economy cannot handle another year, like this one, in which it records a deficit of 6.4% of GDP or more,” Solís said. Among the government’s plans to raise revenue is to switch from a sales tax of 13% to a value-added tax of 15%, but the executive may struggle to pass the bill through an opposition-dominated congress.

Government opponents questioned why the executive wishes to raise taxes but is unwilling to cut spending. Many pointed out that the government increased the budget for 2015 by 19% compared with 2014. Antonio Alvarez, from the opposition Partido Liberación Nacional (PLN) said that his party had repeatedly expressed its willingness to discuss tax hikes with the government if it took action to rein in public pensions, wages and bonuses. Meanwhile, the left-leaning party, Frente Amplio, said the government should focus on tax evasion before tax increases.

• Costa Rica growth

On 31 July Costa Rica’s central bank 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.