Tough Times Demand Straight Talk

by John Marino

April 1, 2005
Copyright © 2005 THE PUERTO RICO HERALD. All Rights Reserved.

. Gov. Acevedo Vilá, citing Planning Board figures from fiscal year 2004, said in a radio interview this week that the economy was doing just fine, despite the government’s budget crisis. Those figures show that the economy expanded by 2.8 percent during the last fiscal year, which ended June 30.

In the same interview, however, speaking about the current chaos of government finances, he called on all sectors of Puerto Rico society to "tighten their belts" and warned that the budget crisis was real, citing as one example the fact that in the Río Piedras Medical Center, "there was not enough money to buy gauze."

At best it was a mixed message, only adding to the widespread lack of clarity surrounding the primordial issue of the day – the financial mess that is the commonwealth government, and the great harm that it is causing Puerto Rico.

Everyone agrees on the need to fix the mess, but that’s about as far as the agreement extends. There is at best contradictory information on the basic facts of the mess: its scope, origin and prescription for its cure.

The economic indicators cited by the governor are good news, but ancient history. What’s going on today in island streets won’t be known until this time next year. But the economic feeling doesn’t seem as rosy as the fiscal 2004 figures. Meanwhile, former Calderón administration officials continue to insist the current budget deficit, for the fiscal year ending June 30, is at best $200 million, while the Acevedo Vilá administration says it’s $1.4 billion or more.

The extent of the mess is important, given administration proposals for a blanket removal of excise tax exemptions, steep new capital gains tax hikes and numerous other revenue raising schemes. For example, only seven states now tax food, 12 tax the press and just one taxes medicine, according to The San Juan Star. Unfortunately, the lack of clarity extends into where political leaders stand on how they plan to fix the mess.

The governor’s budget calls for the proposed exemption eliminations and other moves for a two-year period, enough time, he said, to undertake a complete tax reform. But what he proposes for that transcendental event is still not known, even though the mandate of his tax reform committee was to deliver a report in March. As of this writing, no details have been released from that report.

The New Progressive Party-controlled Legislature reacted to the Acevedo Vilá budget proposal by saying it would write up its own budget, but it too has given scant details. It has shot down most of Acevedo Vilá’s proposals to increase taxes and hike the prices of other basic services, but it has been mute on how it would balance the books.

Both sides need to come clean, and quick. The razor thin election created months of doubt over which direction the island would take, which harmed the business climate and dampened consumer confidence. And it’s still not clear which way Puerto Rico is headed, given the historic composition of the commonwealth government, with power split between the two majority political parties.

On the one hand, the Popular Democratic Party’s Acevedo Vilá needs to explain the proposed blanket removal of excise tax exemptions on such items as food, clothing, text books and other publications, medicine and medical supplies, especially after his fierce criticism of a sales tax as regressive. He also needs to say what he proposes to do specifically to enact a tax, or wider government fiscal, reform. So far, he has shrugged off questions on the subject, saying he will await the findings of the committee he appointed to study the issue.

It’s good that the NPP-controlled Legislature has vowed to create its own budget. But it needs to be crystal clear that proposals to tax food, medicine, publications and other essentials won’t stand. And it should not be so quick to write off sensible proposals to have public corporations be self-sustaining, by making them charge the true cost to the public of what they must spend to deliver their services.

The lack of clarity surrounding government finances isn’t unique to the issue. The NPP and PDP are also warring over status, crime legislation and other issues. In itself, that’s not bad, but it just seems to be extending the political deadlock that arose from the November elections. Both parties could help matters much by being more forthright on their stances on these important policy questions.

The central government has certain financial obligations, and a deadline to meet them. So far, the Cabinet nominations process is going slow, and there’s every indication that the budget process will follow suit. But the clock is ticking. Neither party would want to be blamed for a budget impasse, but they both no doubt would love to prove the other guilty of such an action. And that’s part of the problem.

Both parties would be well advised to start exerting serious political leadership, while leaving the politicking behind.

John Marino, Managing Editor of The San Juan Star, writes the weekly Puerto Rico Report column for the Puerto Rico Herald. He can be reached directly at: Marino@coqui.net

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