Journalist Juan Bolivar Diaz explains the real and subjective reasons that have triggered a series of price increases locally. He explains that the subjective reasons bore more weight, as in the past fiscal reform has always spelled increases in prices. This time around, matters worsened when the government said it would keep the exchange reform postponing its entry into DR-CAFTA to July. The government had spent months justifying the tax reform on the grounds that the exchange commission would be removed. The new tidings brought major confusion, and thus a windfall of speculative price increases.
Other reasons for the tax increases are the application of the 16% ITBIS rate on several items that had been exempt in the past, the increase in the selective luxury tax on diesel that has fueled an increase in transportation costs, and the taxing of fertilizers that will cause an increase in farm produce.
“By keeping this illegal tax the government has chosen to ignore the main argument it used for its passing, and thus lost credibility and caused indignation, making the scenario rife for speculation because it was ignoring institutionalism, legality and the consensus that had been reached. It also motivated an increased confrontation with the legislative branch that has reason to feel tricked,” he writes in Saturday’s Hoy newspaper.
He regards as weak the government’s justification for keeping the exchange commission. The government argues that legislators had cut their request for funds by RD$6 billion or less than 3% of the estimated tax revenues for the years. He said that this could have easily been compensated by minimum austerity in government spending, calling for tenders in purchases or being more efficient in collecting taxes. He says experience already shows that the government is likely to have a surplus in tax collections, as happened in 2005, when 15% more than budgeted was collected.
Diaz also analyzes the political intelligence of the decisions made. It appears that the government has sought to achieve the greatest possible revenues in order to fund the construction of the metro that would ‘modernize the capital’ and to have enough left over for the political investment to be made to win more seats in congress and more municipal positions, he points out.
He says that the government has preferred to put new tax burdens on the population, forgetting that it is still trying to recover from the heavy cost of the way the previous government handled the collapse of commercial banks.
He comments that the 8% growth rate the government is claiming does not convince most Dominicans, just as the miracle of economic growth reported by the Fernandez administration in its previous term did not automatically lead to a subsequent victory for the PLD. He mentions that what there is is a perverse distribution of wealth that does not allow for a greater trickle down effect to the masses.
He concludes that there is still time for the government to rectify matters and eliminate the exchange surcharge. “The ambition for resources can have counterproductive effects, such as those that happened in the first part of the year, when the ‘salt cost more than the goat’, because the opposition forces also have their eyes on the congressional and municipal elections,” he warns.