San José, Costa Rica, since 1956

Costa Rican Fiscal Deficit Up Over 2010’s First Half

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, while revenues increased by only 13.7 percent during the same time frame.

According to the Finance Ministry, much of the increase in spending was due to the payment of government salaries, which rose 23.3 percent, and other 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 internal debt jumped 24.2 percent.

On the revenue side of the ledger, increased tax income generated the largest sums. This included income generated by income taxes, which increased 9.2 percent, income from sales taxes, which rose 24.3 percent and revenue 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 taxes collected,” 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.”

–Adam Williams

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