San José, Costa Rica, since 1956
Politic(o)s

Costa Rica's money troubles: Letting the future decide

La Nación’s recent interview with the Comptroller General, Marta Acosta, is worth a listen. Citizens, academics and, above all, politicians, should pay close attention to her accurate analysis of Costa Rica’s current administrative and economic situation.

Acosta clearly summarizes why it is so difficult to begin and complete infrastructure projects; why the problem of the fiscal deficit cannot be solved without simultaneously addressing the issue of public employment; and why, if drastic measures are not taken soon to tackle the mounting fiscal deficit, the future will decide for us. That decision, according to her, would be much harder than any measure that our current political authorities could implement now.

In summary: better we take measures within our control today, than have to address those same issues within a context of greater economic strain and political unrest. In the current situation of political deadlock, her words, although just common sense, are a big relief.

Many historical decisions differentiate Costa Rica from other countries in the region, including the proscription of the army. But some of them, like the creation of independent and highly technical law enforcement and oversight institutions such as our Judiciary and the Office of the Comptroller General, have without doubt made a difference in the way our political conflicts are channelled and resolved.

I am not making a clear-cut division between the “technical” and the “political.” As explained in my first column, the heads of those institutions are elected by the political branches, and have both a technical and a political mission to accomplish: enforcing the rule of law, fighting corruption, overseeing the appropriate use of public funds, and ensuring the provision of quality public services to citizens. However, their institutional mission, design, and technical capacity allow them to tell citizens not what they want to hear, but what they have to hear. In our case, that the State is in a very difficult economic situation that will have an impact on our pensions, businesses, jobs, exports, and social welfare services.

It would be naïve to believe that our political authorities don’t realize how serious the situation is – even if that sometimes seems to be the case. Some statements by President Luis Guillermo Solís are worrisome: when asked about recent reform proposals from the Costa Rican Union of Private Business Chambers and Associations (UCCAEP), he declared that a “big reform of the State is essential,” but that he is not going to pursue it, since he already “picked the fight to ask for more taxes” (“se compró el pleito de los impuestos”). He said he would focus on that, which, by the way, is the most unpopular issue around.

True, maybe other changes UCCAEP requested – the reform of the Constitutional Chamber of the Supreme Court (Sala Cuarta) or the amendment of the Internal Regulations of the Legislative Assembly – are not as urgent as the deficit. However, what is worrisome is that the President seems to believe that the current financial difficulties can be solved simply by raising taxes; that the fiscal reform comes first, and “we can think of the reform of the State later.”

That is the problem. Our current economic troubles are inextricably linked to the long-delayed reform of the State. They cannot be resolved otherwise. Decisions have to be made on many fronts, or we are just going to waste the new taxes with the same old practices.

That is clear in the interview with Ms. Acosta. New taxes will “oxygenate” public finances, but they will not fix our problems unless we first fix our pension systems, our scheme of public employment, unions’ collective bargaining agreements, and monetary incentives, and if we do not stop financing inefficient institutions. According to Ms. Acosta, for each colón paid in ordinary salaries, ₡1.11 are paid in incentives.

Ms. Acosta’s explanation of how institutions like the National Production Council (CNP) and the National Institute of Housing and Urban Development (INVU) receive money to keep them alive, money they are certain not to use, and that, once transferred, the central government cannot recover instantly. Meanwhile, instead of using that money to pay debt, the State gets more indebted. These are problems linked to the reform of the State. In addition, there are the thousands of public contracts that the Office of the Comptroller General ratifies every year, overwhelming its capacities and resources.

Addressing these issues, and implementing other measures designed to reduce unnecessary spending of public money, have been a precondition that political parties of the opposition have demanded in order to launch a debate on taxes.

Unfortunately, the President’s statements do not to address these issues. I understand that a President has to pick his fights. But whatever that battle is, he has to lead it. So far, it seems that the President thinks that by sending bills to Congress for more taxes, and telling the people why those taxes are needed, he has done the job. The situation is even worse, given that his Minister of National Planning and Minister of Labor and Social Security, in charge of the analysis of the situation on public employment in the country, have warned that their studies and proposed measures are “just a beginning,” almost two years into the current administration.

It is true that the President has been outspoken about the abuses in some collective bargaining agreements, and has even refused to renegotiate some. But these efforts have been isolated and seem detached from a more comprehensive agenda. The opposition knows this, and they have taken advantage by protecting their interests until it is clear what the government will do.

The tasks ahead are not the sole obligation of the government. Other political parties, with the exception of the Libertarian movement, have shown some willingness to compromise on bills in Congress. UCCAEP recently expressed it would be willing to discuss the value-added tax, even in the absence of a big commitment from the government to cut expenditure. Unfortunately, the President’s statements are discouraging.

I do not intend to underestimate the complexities of the Presidential Office. Taking measures is, of course, not a simple task. But he was not elected to advance a tax reform, as he claimed. He was elected to lead a country, and this is what the current situation demands. Meanwhile, we have to be grateful for top public officials as Marta Acosta. Her analysis, proposed measures, and warnings deserve urgent attention. We have done well in creating the Office of the Comptroller General of the Republic. We have done well in electing her as our current Comptroller General. Let us hear, for once, what she has said.

Read more Politic(o)s columns here.

Tomás Quesada-Alpízar is pursuing his doctoral degree in politics at the University of Oxford. In the column “Politic(o)s,” he explores current events and political issues in Costa Rica and around the world. He welcomes reader questions and comments at politicostt@gmail.com.

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dht

Regarding the comment above, and with the utmost respect, I must comment on least a portion of what is said. It is my belief and understanding there are already sufficient taxes on the books that are simply not being properly collected. If the government is casting about to find ways to support a defective and costly system that is currently in place, the obvious solution is to focus on how they will ensure the existing taxes are fairly distributed and collected. Refocus some of the existing overpaid bureaucracy manpower on accomplishing this so they have something meaningful to do that will at least help the government support itself until effective changes can be made to correct the root problems.

But, that said, identifying and taking effective and immediate steps to resolve these root problems is mandatory NOW. It’s easy to suggest new taxes will fix things. Every government makes the same claims, but little is ever done because once the new revenue streams are in place the urgency to tackle the politically difficult tasks dissolve overnight.

To make a point, finances of a country are not so much different that personal or business finances . If you simply keep borrowing from lenders and keep raising your prices for your products or your services you will soon be out of business and bankrupt, and you will have lost the trust of your employers or clients.

Thanks to all that have shown their interest and patriotism by taking the time and making the effort to express their points of view to this excellent article and very important subject!

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Ken Morris

I have to disagree about the tactics this editorial recommends.

It is true that “our current economic troubles are inextricably linked to the long-delayed reform of the State.” However, it doesn’t necessarily follow that “they cannot be resolved otherwise,” in the sense of a reform of the state being a precondition for averting immediate economic crisis.

Even Ms. Acosta agrees that new taxes will “oxygenate” public finances. Every reputable international agency, public and private, also urges Costa Rica to increase tax revenues.

The question is whether Solís (or anyone else) should insist upon a comprehensive overhaul of the entire government first, or prioritize the necessary reforms and propose them one at a time.

I think it’s much more prudent to prioritize the reforms and address the most urgent ones first. The chances of a comprehensive reform of the state happening any time soon are after all somewhere below zero, and while waiting for that to happen crises just grow. Pragmatic leaders know that they have to address the crises now rather than wait around for a total reform.

Look at it this way: If a kid just learning to ride a bicycle crashes and breaks his arm, do the parents say, “you really need to improve your overall cycling skills,” or do they take him to the doctor to fix the broken arm?

I think parents would fix the broken arm first, and that’s all Solís is attempting to do.

Plus, holding up tax reform while awaiting reforms in public employees’ compensation is mainly just rhetoric when it comes from the PLN. The PLN wants Solís to fail, and therefore for tax reform to fail, in order to recapture the presidency in the next election. If it succeeds, mark my words, you won’t see any meaningful reforms in public employees’ compensation (or anywhere else in the state).

I say fix the broken arm, and hold every party responsible for that crucial first step.

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Guanacasteco

Taxes do not need to be increased in Costa Rica. They need to effectively collect on the current tax amounts. There is no enforcement here. Half of the purchases made in Costa Rica, the seller offers you one amount with a receipt and one with cash, no receipt–HALF. Costa Rican accountants ask how much income tax you want to pay and then back into the number. There are too many deductions and with a good accountant, companies pay nothing. Want to limit your taxes, do what Dos Pinos does, form a cooperativa and eliminate taxes on profits. Laws need to be amended and they need a pitbull in charge of the caja who confirms that everyone is paying what is due. The rich of CR do not pay their fair share, like most countries in the world.

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Ivo Henfling

Unfortunately, the voting population of Costa Rica expected changes from this government, something probably impossible to change due to the red tape. For decades, the central government has grown into a huge monster that is fed by very few, those in private enterprise. The monster keeps growing and raising more taxes won’t be enough. Socialism is hurting Costa Rica and I certainly hope Solis will start the effort of cutting down the government apparatus and adjust the colon exchange to where it should be, around 700.

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dht

Don Tomás, thank you for an amazing article, and bringing to light the good that Ms. Marta Acosta is doing for us all as our Comptroller General. Between the both of you light has been cast on the true reality of our fiscal position and challenges, and it is my prayer that President Solis will read and strongly consider the advice you both have given. By far one of the best articles I have read, and one that needs to be heard and acted on by us all. My sincere thanks!

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ccdagp

Solís would be better suited in a Tijauna donkey show than as the President of Costa Rica.

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