Costa Rica’s fiscal deficit highest in region

December 21, 2010

The Finance Ministry reported Monday that the fiscal deficit would finish the year at 5.3 percent of the ross domestic product (GDP), as government spending grew 15.1 percent during the first 11 months of the year. Through November, the Costa Rican deficit was calculated at $2.32 billion.

“Through November, we have accumulated a financial deficit larger than last year in terms of the GDP,” said Fernando Herrero, the finance minister.

“The income earned by the government isn’t recovering at a rate that permits the reduction of the fiscal gap that was opened during the crisis. The deficit will result in grave macroeconomic instability if we don’t do something soon,” he said. 

The oft-mentioned remedy to the growing fiscal deficit is a reform of the national tax system, which Herrero addressed this week. The Finance Ministry’s tax reform proposal would consist of a 15 percent value-added tax and a fixed-rate income tax of 15 percent for interests, dividends, capital earnings and rent.

The tax reform proposal will be presented officially to the Legislative Assembly on Jan. 17. Herrero predicted the fiscal deficit would rise to 5.8 percent in 2011.

 

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