By Cristóbal Pérez-Jerez
In “One Hundred Years of Solitude,” Melquíades proclaimed that, “Science has eliminated distances.” In Stephen Hawking’s great scientific work, “The Grand Design,” we are reminded of U.S. physicist Richard Feynman’s phrase: “A system doesn’t have only one history, but rather all possible histories.”
In the same tradition, Costa Rica has chosen a different history than the other countries of Latin America. Instead of investing in an army, for 200 years Costa Rica has invested in education.
Nevertheless, there are bitter storm clouds gathering on the horizon. Overwhelmed by a massive fiscal deficit, the Costa Rican government aims to boost its revenues with a desperate tax reform, which could have a regressive impact on access to education for the country’s labor and professional sectors.
The government justifies this tax reform proposal by saying, “Recent experience shows that even in developed countries with high income levels, fiscal imbalance can have severe consequences, and the social and economic costs tend to be greater if adjustments aren’t made in a timely fashion, but rather when a crisis strikes.”
The seventh section of the tax reform bill mentions a “reform of the general sales tax.” In terms of education, it says, “Article 10 will be reformed, and an additional article, 10B, will be added with the intention of increasing the general tax to 14 percent, and the establishment of a reduced special tax for educational services, fixed at 10 percent for the particular characteristics of this service. It’s worth highlighting that higher education services will be governed by this special tax always when involving accredited curriculum.”
What does this mean? First, the plausible transfer of the sales tax to the consumer – in other words, students and their families. It means that 60 percent of university students in Costa Rica will see the opportunity for higher education come to a screeching halt, resulting in higher dropout rates due to rising costs. Some 10 to 20 percent of college students would not be able to continue their professional and academic studies.
Second, Costa Rica would lose one of its pillars of strength, as it would no longer allow its workers to study. A mass of people who have no alternative would be excluded from the process of higher education.
In terms of the “reform to the sales tax law,” we find this: sales taxes levied on private providers of higher education in the country would increase by 14 percent, resulting in increased tuition and other costs, multiplying the factors that prevent workers from obtaining a college degree.
The resulting consequence will be a redistribution of income in favor of privileged groups who have access to education that is subsidized by the government. This in turn generates a greater concentration of wealth in the hands of the traditional privileged sectors. According to what we have seen in modern times, different taxes always end up transferring to and impacting consumers.
Even exemptions generate risks. The bill says they will apply to “educational services with total annual remuneration, via any representative and averaged monthly, of an amount equivalent or inferior to 35 percent of a base monthly salary. In cases when remuneration exceeds this amount, the tax shall be calculated based on the total.”
We can assume this will have negative consequences for Costa Rican workers.
First, the cost of higher sales taxes for universities will be transferred to the students, generating a drop in university enrollment exactly at a time when other countries are trying to catch up to Costa Rican educational institutions and the competitive advantage they provide workers.
Second, in order to avoid paying the full tax amount, some families and students may enroll in classes that cost less than the 35 percent of their monthly salaries, which would delay their careers even longer. In order for students and their families to afford college, they’ll have to enroll in only two or three classes per semester, which in the end increases the overall cost and time invested.
Third, this distortion would result in declining quality of academic curriculum and professional capability in Costa Rica.
Costa Rica has always been a proud country, and investing in education has been its greatest source of pride since independence. Hopefully, President Laura Chinchilla and her treasury minister will not go down in history as the first administration to attack and reverse the pace of education. The damage would be irreparable.
Cristóbal Pérez-Jerez is a professor of economics at the Universidad Latina, in San Pedro, east of San José.
