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More Taxes And Spending And Less Capital Investment


April 7, 2005
Copyright © 2005 CARIBBEAN BUSINESS. All Rights Reserved.

Once again, the Commonwealth is tapping into the pockets of the island’s taxpayers, residents, and businesses to pay for the continued growth of the government bureaucracy, making the cost of living in Puerto Rico higher than almost anywhere in the U.S.

In the budget submitted for fiscal 2006 by Gov. Aníbal Acevedo Vilá, taxpayers will again have to foot the bill for bigger government as the proposed Commonwealth budget calls for an increase of $1.06 billion in operational expenses and more than $1.3 billion in additional taxes to be collected from the island’s taxpayers and consumers.

Most of the $1.3 billion in additional taxes will be collected from the removal of exemptions to the excise tax, making products such as food, medicine, children’s clothing, and even books more expensive to purchase in Puerto Rico. The administration proposes to collect $259 million in additional taxes from individual taxpayers and $247 million from corporations, mostly from the financial sector. Another $480 billion in higher rates will be paid for water, electricity, and highway tolls, among others to be collected from businesses and consumers.

Where the new governor does plan to reduce spending is in investments on capital improvement projects, in other words the island’s infrastructure. In infrastructure projects, which contribute to Puerto Rico’s economic development, the administration seeks to reduce investment by over 10% in fiscal 2006.

It seems everyone in Puerto Rico will have to tighten his or her belts to pay for the higher cost of living on the island except the Commonwealth government, which seeks to spend over $800 million more in fiscal 2006 than it did in fiscal 2005, after deducting $341 million in capital investment. Included in the nearly $27 billion Commonwealth’s total budget for fiscal 2006 submitted by Gov. Acevedo Vilá is an increase of more than $1 billion in operational expenses. Didn’t the governor say in his budget speech he was reducing the size of government?

Taxpayers wouldn’t mind paying higher taxes if they could count on good schools, good roads, quality healthcare, safe communities, and an overall good quality of life. Unfortunately, that is not the case in Puerto Rico and is the primary reason why thousands of professional and middle-class families have left the island in the past years.

While the productivity level of the Commonwealth’s employees is poor by any standards, rather than reduce the size of government and spending, the new administration seeks to collect more than $1 billion in additional taxes and revenue from Puerto Rico’s taxpayers and consumers to continue to pay for big government. Having used up a substantial part of the Commonwealth’s credit margin, by borrowing to meet high spending levels and the billion-dollar deficits during the Calderón administration, the Acevedo Vilá administration must resort to collecting more taxes to keep up with the government’s increasing expenditures.

Of course, consumers haven’t realized the impact that removing the excise tax exemptions will have on the already high cost of living in Puerto Rico and their personal and business finances. That’s why the administration has opted to remove these because they are less visible to consumers and it will appear as if the impact of removing the excise tax exemptions will be minimal on the island’s consumers, but it’s businesses that are raising prices, which of course they have to. Once again, the Commonwealth government has found more gimmicks to balance the budget without having to reduce spending. Our trusted Commonwealth leaders, the ones we elected and placed the future of Puerto Rico into their hands have exercised little control over themselves and their spending, creating a fiscal crisis as well as major economic problems for the island that will continue to result in slow growth. On the U.S. mainland, even with the high cost of fuel and budget deficits, the economy is still growing at a rate almost double that of Puerto Rico.

Without a real government transformation, a truly dynamic economy can’t emerge in Puerto Rico. The Commonwealth must begin a process of fiscal, tax, and government reform. As CARIBBEAN BUSINESS has reported, the private sector has a critical role in being the initiator of government reform since the Commonwealth will not transform itself. Government reform must be at the center of Puerto Rico’s economic reform.

This Caribbean Business article appears courtesy of Casiano Communications.
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