BUILDING STRENGTH

Costa Rica 2017 | FINANCE | INTERVIEW

TBY talks to Helio Fallas Venegas, Vice President & Minister of Finance, on how the ministry is combatting the fiscal deficit and building a stronger platform to support future growth.

Helio Fallas Venegas
BIOGRAPHY
Helio Fallas Venegas holds a bachelor's degree in economics from the University of Costa Rica and a master's degree in economics from Universidad de los Andes. Fallas was formerly Minister of Housing and Human Settlements (2002-2005) and Minister of National Planning and Economic Policy (1990-1991). Other representative positions include Specialist in Analysis and Follow-up of projects of the Directorate of External Financing of the Inter-American Institute for Cooperation on Agriculture (IICA), August 1982- February 1986.

How is the ministry reducing the country's fiscal deficit?

When we took office, we did an in-depth analysis of the main finance indicators and policies that had been implemented until then and came to the conclusion that there had been a certain disarticulation. An example of this is that between 2008 and 2010, there was a strong increase in public wages; however, no new resources were created to finance this expenditure. The technological apparatus inherited was old-fashioned. Now, we have focused on income, expenses, and new technologies to improve tax collection. We have implemented several new laws. In terms of expenses, for example, we passed new laws on pensions that are funded by the national budget. Within the focus on expenses, the Caja Única concept is a mechanism through which certain resources get transferred from a ministry to its decentralized agencies. In terms of income priorities, we have approved a draft law to tackle smuggling, while two others are about to be approved dealing with fiscal fraud. In this context we have five more draft law projects lined up: VAT, income tax, public employment, exonerations, and fiscal rule.

How do you assess the commitment made by the government to spend less and raise more revenue without raising taxes?

We have put a lot of the ministry's effort into collecting more and spending less. For example, we have implemented e-tools for people to pay taxes directly on the ministry's website. That change contributed to increasing the overall number of tax returns 18% more than expected. We also created more synergies within the ministry's main areas of work in order to increase the level of tax intelligence. For example, we have increased the number of taxpayer profiles in our database. In Costa Rica, we have a register of 490 large taxpayers to better understand the behavior of companies and improve the tax collection efforts of the government. We have seen that income tax has increased by 15% in the last two years.

What is the current level of primary deficit?

We calculate both the primary deficit and the financial deficit (the same, but including interest). In both 2014 and 2015, these deficits increased; however, in 2016 [data to October] we managed to reduce them. In 2016, the primary deficit was CRC519 billion, whereas in 2015 it was CRC702 billion, a reduction of CRC180 billion. Now, we are at a similar level as to that of 2013. Total income grew in 2016 by almost 9% and income on utilities is up by 14.5%. In this context, total expenses have only increased by 3.6%. This is key to reducing the primary deficit. The fiscal deficit in 2016 was at CRC1.2 billion, whereas in 2015 it was CRC1.35 billion, today representing 3.9% of GDP.

What is the attraction of Costa Rica's finance sector for foreign investors?

As a ministry, we leave the effort to attract foreign investment to other ministries and public organizations; having said that, we have been reducing interest rate, have a stable exchange rate, legal and regulatory stability, and are making continuous efforts to guarantee an ideal investment atmosphere. We are also increasing our available resources and have an effective treasury. We offer great macroeconomic and microeconomic stability.

What are your key priorities for the rest of your administration?

We want to continue implementing the same types of policies and actions we have done for the last couple of years: e-taxation and the implementation of new technologies in most of our processes. Overall, we are satisfied with the work done up until this moment, for the development of the country from the moment we took over has been palpable. At the same time, we believe there is still a lot we can do and will work toward that end.