There is a one hundred foot tidal wave rushing toward Costa Rica in the form of a one hundred and nineteen page tax plan known to the ticos as “ El Pacquetazo”.
Set for a vote in our Asamblea at the end of this very October, this waste of wood pulp is our heroic government’s solution to an economic crisis decades in the making- and heres’ the kicker- it was caused by the very same collection of geniuses who now vow to fix it.
The fiscal plan does fit it’s moniker. It is one huge package of new taxes, though after close study of the plan I think a more appropriate tittle would have been, “The Great Scam-oh”. Known officially as Plan 20580 Para El Fortalecimiento De Las Finanzas Públicas. It could be summed up as one part Denial of reality, one part Ignorance of facts, one part Deflection of blame, topped off with a big dollup of Delusion.
This Fiscal plan without all the convoluted exceptions, of which there are too many and are too complex to go over in this piece, could never begin to avert our plunging over the falls. Even if the plan did not shrink the economy and thusly- in the long run-decrease actual gross revenues to our Hacienda- it could never begin to make up for Costa Rica’s fiscal short fall.
The government’s own stats show a 45% budget deficit and that number, the most recent, was for the year 2015. And for anyone who believes that gap has diminished over the three years hence, I’d like to offer shares in a bridge I own back in New York City. It spans the East river and offers awesome views of Red Hook and The Bowery.
Simply put these new taxes and tax increases, for all the gazillions of old ones, will affect every man, woman and child living in or visiting Costa Rica. Two examples of new taxes for those of us who call Costa Rica home are the Value Added Tax (VAT) known by it’s spanish name as Impuesto Al Valor Agregado (IVA). This is where products and services are taxed from point of origin/ production all the way to point of delivery/ execution. A devious tax hidden within the retail price so it’s the poor retailer who catches the grief from the angry consumer. “ Why are your prices so high!? Oh well, it’s not as if consumer prices were too high in Costa Rica already. Stand by to start paying more for that tiny jar of Peter Pan peanut butter than eskimo’s pay for an eightball of blow.
Then there is the all new (for Costa Rica) Capital Gains Tax, known in Costa Rica as Renta De Capital y Ganancias y Pérdidas De Capital. Your basic tax on profits. From realestate to dividends Uncle Tico wants his cut.
This should of course cause alarm to anyone who bought property in Costa Rica as an investment, or “flip” property, utilizing the time honored Costa Rica trick of claiming some ridiculously low purchase price in the sales contract in order to beat the government out of the applicable sales tax paid by the buyer at point of sale.
Amongst all these chicky new ways of taking more of our hard earned money what you will not find in this migraine inducing one hundred and nineteen page sledgehammer of a tax plan is any acknowledgement that our beloved government is simply too damn big and delivers to the people too damn little. To the contrary. Within the section entitled, Why we (the government) are Entitled to Screw the Tax Payer Even More Than Ever (my translation), the Gov’ proudly proclaims to be a leader within the community of nations when it comes to delivering on social guarantees such as public education, health-care and the most laughable of all- security. Fact: Costa Rica is currently suffering the highest violent crime rate in it’s history, but due to threats from angry citizens platoons of police officers are being pulled off their beats to protect the homes of Costa Rica congressmen.
They even brag in the tax plan that Costa Rica’s percentage of GDP dedicated to social programs is in line with such bastions of freedom and upward mobility as Brazil and Uruguay. So where does the other 80% go?
Never mind that this tax plan is unconstitutional. Article 176 of Costa Rica’s Constitution clearly and unambiguously states, “In no case shall the government budget expenditures exceed projected tax revenues”. In other words the Gov’ can NOT spend the nation into mortal debt. But that is exactly where we are. How deep of a fiscal hole has our government put us in? No one outside of government heirarchy can say for sure. Just ask our former President Solis, he’ll tell ya.
All year government propaganda peddlers have been working overtime, through every form of media known to man including college students in sandwich boards prowling Central Avenue in San Jose to spread the word that “all is well” and my personal favorite, “we’re all going to have to share the burden of our economic recovery- blah-blah-blah”. As if the government bankruptcy was an act of God and not the fault of decades of inept and corrupt political leadership. Andrew Dice Clay has a better shot at being the next Pope than this Pacquetazo has of turning around Costa Rica’s economic downward trajectory.
Our brave leaders idea of sharing the burden is little more than temporary wage freezes for government workers. There is no mention of cutting, let alone eliminating, generous government bonuses known as “pluses”. These mafiaesque bonuses can amount to as much as 80% of a civil servants salary. Nor does the Pacquetazo address the nine hundred pound pink gorilla in the room: The challenge of shrinking the size of government itself. In medical terms Costa Rica bureaucracy has a body mass index of 87.9% fat. I’m not a licensed dietary expert. It could be higher.
PYROMANIAC FIRE BRIGADE TO THE RESCUE
It shouldn’t be news to anyone that we are now in our fourth week of a nationwide strike made up of a virtual alphabet soup of labor unions, mostly of the public sector variety.
These nationwide, though sporadic, strikes began on Monday the 10th of September. Though it is debatable the impact the strikes have had on the average Tico. As of press time the tourism industry was reporting losses upward of 50% on average as far as current number of visitors and reservations for the upcoming high season. Hotels in Limon report numbers to be down by 75% and out west in Guanacaste 40% down.
Amongst the myriad of unions protesting the government’s new tax plan the largest by far is the union representing our national petroleum workers (RECOPE) known by the acronym SITRAPEQUIA. Now that’s a mouthful. It must take five guys just to carry one protest sign. RECOPE is, of course, a semi autonomous government monopoly.
According to Costa Rica’s Department of Information and Statistics (INEC) approximately305,000 lucky ticos derive their livelihoods from taxpayer contributions. Costa Rica’s civil servants and professional politicos make up 15% of the overall work force, according to INEC. The government is this country’s biggest employer by a country mile. A Texas mile.
THE SHAKE DOWN
This alliance of government unions or sindicatos are demanding that the government scrap the Pacquetazo and replace it with their own eight point plan to save the republic. At the very least the sindicatos’ plan is more environmentally friendly as there are way fewer pages.
The union solution is your usual delusional socialist’s grab bag of feel good selective wealth distribution and stifling over regulation. From applying stiff fines to banks which charge excessive interest rates to aggressively pursuing individuals and companies morosos (delinquent) on payments to La Caja- Costa Rica’s Social Security Agency. According to La Caja Costarricense Seguro Social (CCSS aka La Caja) there are hundreds of millions (USD) in missing revenue due to los morosos companies, many of those companies international outfits with branches in Costa Rica. These debts are relating to employee coverage.
Foreign hi-tech outfits such as Hewlett-Packard have been in a slow motion retreat from Costa Rica for years now. Accounting for hundreds of lay-offs at HP alone. Cost of labor compliance being cited as a prime factor in the decision to downsize their labor forces in Costa Rica, often times shifting to local subcontractors in order to evade excessive government imposed employee benefits.
The alliance of unions opposed to our government’s tax plan are also protesting any move by the government to repeal any tax free status of companies (mostly foreign) operating within Costa Rica’s tax free zones known here as Zonas Francas. Less than a decade ago the Zona Francas were spread all over the country especially in the poorer areas such as Puntarenas. These zona francas are a throw back to the Reagan era and the predecessor of our current TLC (free trade agreement) with the U.S.A. which was once called the Caribbean Basin Initiative (CBI).
For all intents and purposes the CBI is the same deal as our current trade agreement- just with a different acronym. These tax free zones proliferated during the more investment friendly attitude of Costa Rica’s government during the carefree post cold war days of the roaring nineties. Today the zona francas are mostly limited to a half dozen locations mostly in the central valley regions of Heredia and Alajuela.
THE EMPEROR WEARS NO CLOTHES
Is it just me, or is there something fishy in Denmark? Am I the only sober person in Costa Rica who believes there is something bizarre about our government labor unions protesting the very plan to generate the funds needed in order for the government to continue paying the wages, health care costs and most of all generous pension plans of those very same striking government (for the most part) workers? Wiskey Tango Foxtrot over here!?
Costa Rica has 330 individual government agencies, many of them overlapping in jurisdiction and responsibilities. For perspective keep in mind that the U.S.A, a nation with over three hundred and thirty million inhabitants along with a military- the world’s most expensive- has only 220 federal agencies. Any human being unlucky enough to have to (no one ever goes for fun) go to one of those 330 government departments- immigration or transito, the post office, for instance- can tell you there is no shortage of civil servants in Costa Rica. There is a chronic shortage of professionalism and customer service though.
Something that never seems to change no matter how obese the government becomes.Waste and rampant corruption are time honored traditions in Costa Rica and are practised with an almost religious ferver in every nook and cranny of the public sector. Today’s economic crisis can NOT be blamed entirely on scandals such as “El cementazo”.
I’m speaking of our most recent billion dollar scam where employees of Costa Rican state run banks and political appointees laundered billions of dollars through shipments of chinese cement that didn’t actually exist. This level of corruption is more common than topless rum guzzling german girls at a reggae festival in Limón.
In the twenty seven years since the fall of the Soviet Union and the consequent end of the civil wars which raged across Central America in the 1970’s and ‘80s, Costa Rica’s public sector unions have not only grown in numbers (and letters!), but in membership within those alpha-numeric sindicatos over the last three decades; far outpacing growth in
the private sector. Enabled and protected by their politically appointed puppets, a viscious- though lucrative- circle of tax payer funds going to union workers to union bosses to their political lap dogs who continue to keep the wheel of fortune a spinning and on and on it goes. The only thing that changes decade to decade are the number of zeroes on the amount of graft.
Our public sector unions may be greedy, but they sure as hell ain’t stupid. The public relations campaign being aggressively waged by the public sector unions must be working. Recent polls done by Costa Rica’s leading daily newspaper, El Diario Extra show most ticos polled believe the public sector unions are the good guys; taking on the corrupt and inept government. Though those people being denied surgical procedures at state run hospitals, kids being denied access to commuter trains bound for university classrooms and lines of tourists humping the last Klick to the airport on foot; their belongings stacked on their heads like refugees from a third world hell hole, would probably beg to differ. You would think. Of course after thirty two years as a full time resident of beautiful Costa Rica, I have seen so many things that make absolutely no sense whatsoever I often find myself questioning the very existance of gravity.
JUDGMENT DAY COMETH
Here in lurks the great big fat conundrum- what our civil servants want from us, we the tax paying, job creating, goods and service providing private sector can no longer afford to provide. The only question is how long will it take the public sector unions and their political puppets to figure it out? How much pain and sacrifice will the private sector have to suffer in devalued currency (the government has already cranked up the printing presses), loss of wages and jobs along with skyrocketing consumer costs etc before the beast (our public sector) collapses and takes it’s last breath? Only with an official declaration of bankrupcy on the part of our government along with a streamlining of the size of government (public sector lay-offs) will Costa Rica be able to start the kind of economic growth and opportunity the vast majority of Costa Ricans need and want.
My guy in Vegas says the line has the “over and under”on the collapse of the Costa Rican government at 5 years. He recommends I go under. I agree. Indeed I rolled my kids college money into a two way “teaser”: That Costa Rica goes belly up in less than 5 years and in addition will switch to the U.S dollar as it’s national currency to boot. It’s money in the bank.
Maybe it’s time that those of us in the true majority, those of us who are not lucky enough to have an uncle with juice at the Ministery of Justice or La Caja. Those of us, in other words, who actually work for a living and give up way too much of our hard fought incomes to an ungrateful and let’s face it- for the most part- corrupt government. Maybe we should go on strike. A tax payer revolt!.
Of course that is not likely to happen until we the people wake up and smell the café. To see with clear eyes that our government here in Costa Rica is throwing a big ole banquet, only we the people are not on the guest list. We’re on the menu.