Caribbean & Central America - December 2011 (ISSN 1741-4458)

The first test of Pérez Molina’s room for manoeuvre in congress and ability to negotiate has emerged in relation to his two immediate economic priorities, both of which are key to the implementation of his government plan. These are the ratification of the 2012 State budget and fiscal reform. The former – a notoriously thorny issue in the country – has already been achieved. Days before the constitutional deadline, congress ratified the budget for Q$59.5bn (US$7.6bn) by 100 votes in favour and 37 against. The move followed the agreement that the government could not make transfers to allow NGOs to carry out infrastructure projects – a provision aimed at boosting transparency. Fiscal reform – which Pérez Molina persistently blocked during the course of the current Colom government - is likely to prove more difficult. The need to raise extra revenue has long been highlighted by critics who point to the rising public debt - which hit Q$81.5bn (US$10.4bn) at the end of 2010 (representing 24.6% of GDP, compared with 23% of GDP in 2009). The Central American institute for fiscal studies also pointed out that the PP government plan requires an extra Q$13bn (US$1.6bn) on top of that assigned in the budget. Having pledged to raise the tax take to 14% of GDP from the current 10.5%, through clamping down on evasion, Pérez Molina’s announcement of plans to revive the UNE’s fiscal reform proposal has unsurprisingly antagonised the opposition, which accused him of double standards. The reform includes plans to: cut income tax from 31% to 25%; introduce a tax on vehicle imports; and subject companies to a dividend distribution tax. The PP, which hopes to take in an additional Q$2.8m (US$359m) in the first year, rising to Q$4.8m (US$616m) at a later date, justified its reversal on the grounds that it had never opposed the fiscal reform per se but rather had conditioned its approval on the institutionalisation of the UNE’s social programmes.

End of preview - This article contains approximately 342 words.

Subscribers: Log in now to read the full article

Not a Subscriber?

Choose from one of the following options

• Subscribe
• Sign up for a one-time, 14-day trial