In her “The Reform That Could Have Been” contribution to the fiscal reform debate via Diario Libre, economist Ellen Perez Ducy joined many who have presented alternatives to the widespread increases in taxation proposed in the Fiscal Modernization Plan presented in October by the Abinader administration to the National Congress.
Perez Ducy had written on Thursday, 17 October 2024 that the Abinader administration has other options to secure needed extra resources outside of those proposed in the Fiscal Modernization Plan. The measures are in part sought to appease foreign lending assessment agencies to reduce the risk level of the country so borrowing rates may drop and to provide an abundance for increases in public spending.
Perez Ducy said that by addressing tax evasion, controlling public spending and gradually dismantling exemptions and subsidies the government could create a fiscal surplus of RD$305 billion without having to increase tax rates or expand the tax base.
Perez Ducy wrote that before asking the public to make sacrifices—estimated at one month’s salary for the average worker—the government should have prioritized:
- Reducing the public payroll: This could be achieved by cutting positions and/or implementing a staggered salary reduction back to 2022 levels. Even with a RD$5,000 increase in the minimum wage for 12,000 workers (costing RD$780 million annually), the government could save RD$27.22 billion.
- Temporarily freezing or amending the Recapitalization Law for the Central Bank (BCRD): The Bank has received RD$112.87 billion in bonds, which cover the original debt from the banking crisis, and RD$235 billion in interest. This could be considered settled, allowing for a reduction of scheduled expenses by RD$35 billion.
- Freezing and reviewing Law 66-97: Instead of indexing it to GDP growth without a corresponding increase in students, teachers, or educational outcomes, this could yield savings of RD$4.5 billion or more.
- Eliminating unlawfully-granted pensions: This could save RD$135.4 million.
After implementing these measures, the government consider:
- Gradual reduction of tax exemptions: A one-third reduction by 2025 could generate RD$113 billion in revenue.
- Cutting one-third of electric subsidies: This would save RD$25 billion, bringing subsidies back to their average levels from 2021-2022, when the average oil price was USD$81 per barrel—higher than projected for 2025—focusing instead on improving collection and reducing transmission losses rather than blackouts.
The aforementioned measures could result in savings of RD$205 billion, Perez Ducy highlights. She pointed out that coupled with a one-third reduction in tax evasion amounting to RD$100 billion, this would yield a total fiscal surplus of RD$305 billion, primarily affecting businesses, then the state, and to a lesser extent, the population.
Perez Ducy says that attention should be paid to the Property Transfer Tax (IPI), which involves three variables: valuation, exemptions, and rates. This combination could lead to arbitrary billing practices, potentially putting elderly homeowners at risk of losing their properties due to IPI calculations performed by incentivized employees. The national housing prices are comparable to those in major cities, with the Dominican Republic holding the second-lowest property ownership rate in the region.
Read more in Spanish:
Diario Libre
21 October 2024