San José, Costa Rica, since 1956

Tax Plan Dead, Say Legislators

THE much-debated tax plan is dead, according totwo congressmen who form part of the LegislativeAssembly’s fiscal reform commission, but the plan’sproponents say it’s too soon for a funeral.If the Constitutional Chamber of the Supreme Court(Sala IV) rejects the five cases related to the tax planrecently submitted to it, the Legislative Assembly couldbreathe life back into the ailing two-year-old project. Untilthe Sala IV issues a ruling, however, the Permanent FiscalReform Package remains stuck in a coma with legislatorsunable to vote on the controversial bill.“The fiscal plan is dead,” said Patriotic Bloc legislativedeputy Humberto Arce, a member of several of thecommissions that have studied and modified the plan.Arce told The Tico Times this week he is confident thehigh court will rule in such a way that all recent work onthe tax plan will be annulled, effectively signing itsdeath certificate.The plan’s most outspoken legislative opponent,commission member Federico Malavassi of theLibertarian Movement Party, agreed.“It has died,” Malavassi said Tuesday. “It was killed by (ruling Social Christian Unity Partydeputy) Mario Redondo and his gang.”Redondo, the fiscal reform commission’spresident and one of the tax plan’smost steadfast supporters, disagreed.“No, this is not the end of the fiscalreform,” Redondo said. “The plan hasenough votes to be approved. We’ll keepmoving forward with the plan because it’s acrucial reform that the country needs.”INTERNATIONAL credit evaluatorMoody’s Investor Service, citing the country’sfailure to pass the tax plan, recentlyrated the Costa Rican economy’s outlook as“negative” for the second time.“The limited progress made toward fiscalconsolidation is exercising downwardpressure on the country’s rating,” stated thefirm’s August report.Moody’s downgraded Costa Rica’s outlookfrom “positive” to “negative” in Aprilof last year (TT, April 25, 2003).In both reports, Moody’s expressed concernabout the government’s fiscal situationand the increasing amount of credit in U.S.dollars in the country’s financial system.Finance Minister Alberto Dent citedMoody’s outlook as another reason why themuch-delayed tax plan needs to be approvedurgently.HOWEVER, before legislators canvote on the plan, the Sala IV must rule on anunconstitutionality action against steps takenby Redondo and other legislators to speed upthe process of debating the plan.In late June, the Sala IV agreed to studythe action, filed by congressmen JoséMiguel Corrales of the National LiberationParty and Gerardo Vargas of the CitizenAction Party (TT, July 9).The case questions measures taken inMarch by Redondo to set a deadline for thefiscal reform commission to issue a reporton the plan.Last month, the Government Attorney’sOffice, at the request of the Sala IV, issued anon-binding report on the legality ofRedondo’s actions, in which it sided withCorrales and Vargas.If the justices of the Sala IV rule againstRedondo’s actions, all changes made to theplan since March would have to be annulled(TT, July 23).The Sala IV has no limit to rule on mattersof unconstitutionality.FOUR other actions of unconstitutionalityawait word from the Sala IV aboutwhether it will accept them for review. Twoweeks ago, Arce filed an unconstitutionalityaction questioning an agreement reached inJune by most of the commission’s membersthat dramatically reduced the time allotted todiscuss each motion from the third series ofmotions issued on the floor of the assembly(TT, June 11).The same agreement was reached for thefourth (and final) series of motions, currentlybeing debated in Congress.“They (proponents) made a bold and daringmove hoping it would pay off; insteadthey doomed the tax plan,” Arce claimed.The agreement’s proponents say theysought to prevent Malavassi and otherLibertarian deputies from using filibusteringtactics to delay the tax plan.So far this year, the Libertarians havefiled more than 2,500 motions to reform thetax plan. Most have no substance and onlyserve to bog down the plan, according toFinance Minister Dent (TT, April 16).Arce, however, argues the time limit todiscuss each motion makes it impossible forlegitimate motions to be discussed.MALAVASSI has issued three unconstitutionalityactions of his own – one againstRedondo’s actions last March, one againstthe agreement to speed up the discussion ofthe third series of motions and anotheragainst the agreement on the fourth series ofmotions. The Sala IV has yet to announce ifit will study these actions.Redondo defended his actions, callingthem necessary.“We took those actions to make thedebate viable,” Redondo said. “Waiting 20years to go through all the motions made nosense. We were obligated to find a way toguarantee there was a debate that respected(political) minorities, but allowed the plan tomove forward.”Redondo told The Tico Times he expectsthe Sala IV to reject all the unconstitutionalityactions piling up against the plan.He said he expects the commission tofinish studying motions to the plan by theend of next week and the assembly to voteon the plan for the first of two times beforethe end of next month.FIRST proposed in early 2002 by acommission of former finance ministers,the tax plan was meant to serve as a permanentsolution to the country’s growingbudget deficit.By creating new taxes and improvingthe collection of existing taxes, the planwould increase revenues by an amount equalto 2.56% of the country’s gross domesticproduct (GDP).Since taking office in May 2002,President Abel Pacheco has insisted on theneed to implement a comprehensive taxreform, calling it one of his top priorities.To give legislators more time to discussthe tax plan, a one-year Emergency Tax Planwas approved in December 2002 (TT, Dec.20, 2002). The emergency plan expired atthe end of last year and was not renewed.Minister Dent and representatives ofinternational financial institutions havestressed the need to approve the tax plan toensure the country’s future economic stability(TT, July 16).

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