Government outlines reform proposals for taxes, labor and electricity
The key draft laws of President Luis Abinader’s economic reform program have been developed in recent weeks, with tax, labor and electrical sector reforms delineated. The proposed new laws are to be sent to Congress for consideration in coming weeks.
The goal of the tax reform plan is to increase revenues by 1.5%-1.7% of GDP, and also to reduce expenses by 0.25% of GDP, by creating greater efficiency in government bureaucracy. Over the next two years, the electricity sector is to focus on reducing losses and combating fraud. The operation of public electricity distribution companies would then be privatized, though ownership would remain with the state.
In labor, the proposal includes regulation of teleworking (remote work) and domestic household service, with an increase in vacation and paternity leave days -- but it seems that the severance pay regime won’t be changed. This is a crucial point for promoting greater formalization of micro and small businesses, and one over which the unions and business sectors hold divergent positions.
Economic activity grew by 4.8% y/y in July, down from accumulated January-July 2024 growth of 5% y/y. Inflation remains at bay, at 3.42% y/y in August. The Central Bank began reducing the monetary policy rate, cutting it by 25 basis points in September, to 6.75% annually, from the rate in force December 2023-August 2024. The exchange rate depreciated monthly by 0.8% in August, equivalent to an interannual depreciation of 5.29%.
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