With proposed tax increase, the new government's honeymoon is over
With a proposal for the creation of new taxes incorporated into the 2021 proposed national budget, the customary honeymoon for a new government has ended even before President Luis Abinader has completed his first 100 days in power. The government has sent to Congress a 2021 budget that concomitantly creates new taxes, given the need to raise tax revenues to reduce the public deficit created in 2020, in the context of the COVID pandemic.
In reaction to the displeasure of various sectors, including opposition political parties, the government has indicated that the new taxes will be transitory, and will only apply in 2021, and says it is committed to reaching a consensus on a tax reform before the end of 2021. The proposed new taxes fall on transactions in dollars with credit cards, digital services, Christmas salary, special profits of companies during 2020 and the assets of the financial sector.
The proposed budget contemplates a reduction of the central government deficit from 9.3% of GDP in 2020 to 3% in 2021. Compared to 2020, an increase in fiscal income by 1.6 ppts of GDP is projected, and a contraction of expenses by -4.7 ppts of GDP. Financing needs amount to $4.7 billion (5.9% GDP). Although the budget bill does not go into detail, the main source of increased fiscal revenue is capital income, which would imply income from asset sales.
Economic activity continues to recover, although relatively slowly. The accumulated contraction January-August 2020 compared to the same period in 2019 of the Monthly Economic Activity Index is -8.4 %, slightly lower than the accumulated January-June and January-July of -8.5%. The government is putting all of its efforts into accelerating the recovery process, promoting greater flexibility in the curfew hours and promoting measures to encourage domestic tourism. The fact that COVID infections and the number of deaths have been controlled generates optimism.
At the political level, September was marked by the process for the selection of the members of the Central Electoral Board by the Senate, and the divergence of positions on the requirement of non-partisanship by those who hold office. Abinader has indicated that the members of the Central Electoral Board must be independent, while the PLD calls for the creation of a Central Electoral Board supported by the consensus of the main political forces.
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