Este informe no está disponible en español.


On The Budget


February 27, 2003
Copyright © 2003 CARIBBEAN BUSINESS. All Rights Reserved.

The governor’s speech last week on her proposed budget for next fiscal year 2004 (ends June 30, 2004) brought little good news.

Just like last year, the administration proposes a considerable increase in government operational spending--as opposed to capital expenditures--and a series of measures that either increase taxes or reduce the amount of previously legislated tax relief.

In her State of the Commonwealth speech before a joint session of the Legislature, the governor announced a consolidated budget for FY 2004 of $23.3 billion. The administration’s spin to the press was that the figure represented a conservative increase of only 1.7% over the current fiscal year budget. What they did not stress, and most of the press did not pick up on, is that the proposed General Fund budget will grow by 4.4% to $8.2 billion. The Consolidated Budget includes the budgets of all public corporations--most of which generate their own revenue--while the General Fund is where your tax dollars go to pay for the central government agencies’ operations.

Fueling the increase, just like last year, are salary ($100 per month) and Christmas bonus ($250) increases to public employees, among other things. Do they deserve it? Of course. Is this the time to give such increases given the government’s fiscal situation? Hardly.

Other goodies include higher benefits for retired government workers, i.e., unfunded liabilities into the future, the kind that politicians are prone to promise but that have the Commonwealth’s pension fund already facing a $7.9 billion deficit. (CB Sept. 26, 2002).

Interestingly, all of these goodies for government workers and retirees kick in January 2004--i.e., in the second half of the next fiscal year that starts July 1, 2003--right at the beginning of the election year. Coincidence?

To pay for the increases, the administration is reaching into new possible sources of new revenue including: new taxes on business (by eliminating the 100% tax exemption on International Banking Entities), lower tax relief to the middle class (by eliminating the previously legislated elimination of the marriage penalty tax and the across-the-board income tax reduction contemplated in the previously legislated tax reform) and an amnesty to lure delinquent taxpayers to come clean and file their back taxes (by partially condoning interest and penalties).

The new tax on International Banking Entities may yield the government $25 million in new tax revenue, but it’s plainly a bad idea. The Bankers Association has already warned that eliminating the 100% on these financial institutions could result in their flight to other tax haven jurisdictions.

The administration said that its package of tax relief for the middle class is better targeted to benefit those on the lower echelons of that bracket. Perhaps. But the fact of the matter is that by eliminating the previously legislated repeal of the marriage penalty tax and the 1% across-the-board income tax cut, the administration is pocketing around $160 million of previously legislated taxpayer relief. Hardly a generous move towards the middle class.

On the positive side, we do applaud the administration’s initiative to grant a $500 itemized deduction for the purchase of a computer. If the idea is to encourage the acquisition of a computer by families with children who don’t have one (as opposed to just upgrading an old computer) we believe the initiative has merit.

But by far the most encouraging piece of news in Gov. Calderon’s budget speech to the Legislature is the promise of $3.9 billion in capital improvement investment, i.e., public works construction, for FY 2004 (starts July 1, 2003, ends June 30, 2004). For more than two years we have been predicating the need for the government to move forward on its infrastructure construction program, so we need not repeat ourselves now. Suffice it to say that despite repeated assurances of the start of a big public works program, in the past two years we have been disappointed time and again. We truly hope that this time is for real--it certainly should be, given the election year coming up--and that by midyear we will see Puerto Rico’s construction industry finally booming again.

This Caribbean Business article appears courtesy of Casiano Communications.
For further information please contact

Self-Determination Legislation | Puerto Rico Herald Home
Newsstand | Puerto Rico | U.S. Government | Archives
Search | Mailing List | Contact Us | Feedback