Costa Rican fiscal deficit widens during first half of year

July 16, 2010

 

The Finance Ministry announced that government spending ballooned 26.5 percent in the first half of 2010 in comparison with the same period in 2009. Government revenues increased only 13.7 percent during the same time frame.
 
According to the Finance Ministry, much of the increase in spending was attributed to the payment of government salaries, which rose 23.3 percent, and personnel expenditures, which went up 36.2 percent. The ministry also reported that university expenses increased 29 percent, interest payments were up 12.7 percent and that internal debt jumped 24.2 percent.
 
On the revenue side of the ledger, increases in taxes generated the largest sums of government income, including income generated by income taxes, which increased 9.2 percent, from sales taxes, which rose up 24.3 percent and from the customs tax, which shot up 30.5 percent. Income from utility taxes also grew 4.5 percent during the first six months of the year.
 
“We have to be very cautious about being pleased with the increase in the collection of taxes,” said Fernando Herrero, the finance minister. “While the areas of income grew in small amounts, particularly in the case of internal taxes, the weak economic recovery does not allow us to forecast important growths in government income. We are at a time when our focus needs to be on improving the management of public finances.”
 
The Finance Ministry predicted the growth of the fiscal deficit for 2010. The deficit, which is currently over $402 billion, currently represents 2.18 percent of the gross domestic product (GDP). Herrero has said he expects the deficit to account for 4.5-4.8 percent of the GDP by the end of the year (TT, May 28). 
 
As far as plans to limit the expanding deficit, Herrero said the ministry will continue to combat fraud and tax evasion, and look for new avenues to generate income, potentially by exploring the option of a tax reform.
 
“In the next few weeks,” Herrero said, “we will present a proposal to the country to introduce some reforms to the tax system that will allow us to improve the equity of the system while working to generate more income and reduce the system’s complexity.”

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