Published Wednesday, January 13, 2021
Government announces more measures
to reduce public spending
By the A.M. Costa Rica staff
On Tuesday, the government issued Decree No.42798-H, which restricts the growth of current transfers, one of the main growth factors in public spending in recent years.
Regarding the limitation in transfers, a decrease of 0.5% will be applied each year, so in 2025 the transfers will not be able to exceed more than 2.53%.
Also, the decree reduces the budget for the purchase of goods and services, as well as extra payments. Starting this year that purchase budget will be reduced by 7.5% each year until reaching an upper limit of 67.7% in 2025. In the case of extra payments for services, the reduction will be 8.5% until reaching 64.1% in 2025.
Also, it will freeze job vacancies and restrict the increase in pensions that are paid from the national budget.
According to Elian Villegas, Minister of Finance, these changes demonstrate the government's commitment to reducing public spending.
The decree budget reductions will be applied to all public organizations that are financed with the government budget, from 2021 to 2025. However, it does not affect the budgets of Congress, the Court and the Supreme Electoral Tribunal.
The government called on authorities of all institutions to apply the decree budget cut on all public organizations.
On Monday the government presented the plan to reach an agreement with the International Monetary Fund, IMF, to obtain a loan of $1.7 billion.
With the loan and adjustments in government expenses and income, the economic stability of the country in the medium and long term can be guaranteed, the Ministry of Finance said in its statement.
To generate income, the government proposes to create more taxes, for example, charge an income tax to the school bonus for public employees. The school bonus is an extra payment for public employees made in January as a support to cover the expenses of their children at the beginning of the school year.
The plan also includes canceling or reducing some exemptions, increasing the tax on luxury homes, creating a universal income tax, creating a new tax on lottery prizes, among others.
Plus selling the loan assets portfolio of the National Commission for Education Loans, which provides credits to University or academy students to continue with their careers.
When it comes to reducing public spending, several projects were proposed such as changes in the public employment law (which reduces privileges to public employees), reducing expenses in the purchase of goods and services and reducing the pensions that are paid out of the government budget.
The plan proposes to reduce spending from 16.45% of GDP to 13% within the next five years.
What should the government do to improve the economy and reduce the fiscal deficit? We
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