Less Public Spending, Finally

Although insufficient, the package of government spending containment measures proposed by the Alvarado administration is a good first step on the way forward to resolving Costa Rica's delicate fiscal situation.

Thursday, May 31, 2018

The Minister of Finance, Rocio Aguilar, presented before the Legislative Assembly a plan to contain government spending that includes, among other measures, decreeing " ... every six months the same fixed amount of salary increase for each government official, a sum that aims to avoid an exponential growth of the wage bill and protect the lowest wages. It will be calculated as the result of applying the cost of living percentage to the lowest base salary. The annual impact of this measure is estimated at ¢12,600 million ($22 million) including social security contributions, equivalent to the sum of the budgets executed by the Ministry of Foreign Trade and the Presidency in 2017."

The document prepared by the Ministry of Finance details the measures related to the 2018 budget: 

" • The sums of current expenditure, excluding interest, purchase processes and other acquired commitments, not executed in the first semester, will be transferred to a budget-free amount of sums. The purpose is not to make budgetary modifications that allow their use.   

• The budget for payment of overtime is reduced by 50%. An impact on the 2018 budget of ¢3,295 million is estimated. This measure will be kept under surveillance during the four years of the Alvarado Quesada Administration. 

• The advertising budget is reduced by 30%, with the exception of the Costa Rican Tourism Institute. An impact of ¢173.5 million is estimated in the 2018 budget.  

• Travel and per diem spending abroad is reduced by 30%. With the exception of the Ministry of Foreign Trade, the Ministry of Foreign Affairs and Religious Affairs and the Costa Rican Tourism Institute. This measure will generate an impact of ¢173.2 million.  

• Spending on protocol and social activities is reduced by 50%. With the exception of Presidential House and Ministry of Foreign Affairs and Religious Affairs. This measure will generate an impact of ¢99.6 million.  

• The budget for economic and social services is reduced by 20%. This measure will generate an impact of ¢320.7 million and will remain under surveillance during the four years of the Alvarado Quesada Administration.

These set of measures will generate savings in the budget of ¢4,141.6 million."

See full presentation. (In Spanish)

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From the section Fiscal Outlook for Central America, from the report "Macro-fiscal Profiles: 9th edition", by the Central American Institute of Fiscal Studies (Icefi):

Costa Rica as Seen by the OECD

June 2016

The organization says there is an urgent need to raise revenue and reduce expenses, "including the public sector wage bill, which is growing rapidly."

The report "Economic assessment of Costa Rica 2016" by the Organisation for Economic Co-operation and Development (OECD) highlights the fiscal problem as the main challenge for the country on its way towards accession to the bloc. 

Main challenges and key recommendations for 2016-17:

Challenge:
Tax revenues are low and spending is increasing rapidly, pushing public debt to high levels. Public administration is highly fragmented and the Ministry of the Treasury has limited control of the total public expenditure.

Recommendation:
Reducing the central government deficit by 2% of GDP during 2016-17 and then an additional 1.5%, approving and implementing the proposed tax reform, combating tax evasion, removing tax exemptions that have no economic or social justification, and containing expenditure growth.
Introducing a medium-term fiscal framework with a clear and verifiable rule for expenses.
Improving efficiency in public spending by strengthening the authority of the Ministry of Finance to control overall public sector spending and introducing a results-based budget.

Read full report "Visión General Costa Rica 2016" and "OECD Economic Surveys: Costa Rica 2016"

Less Spending, Tax Evasion Control and Tax Reform

January 2011

Costa Rica's government announced the measures it intends to implement in order to deal with growing government spending and improve public finances.

The press release from the Ministry of Finance highlights the three pillars of the measures and the actions to undertake in each of them:

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