Public Finances, and Thus the Common Good, Are Being Abused
This expert in fiscal law analyzes the
exceptional national situation and the
current government’s deficient, incoherent
and elitist economic policy.
We’re going through an exceptional situation in Nicaragua right now. Eight new factors have appeared, or at least they’re happening for the first time in many, many years, and it’s certainly the first time they’ve happened simultaneously. We’ll reflect on the current fiscal policy according to these eight extraordinary situations.
The eight factors of exceptionalityInternational crisis: The first new factor is the international crisis shaking the world. In our case it’s causing a fall in exports, a drop in remittances from abroad and much more. This global situation is “the jewel in the crown” of the domestic reality we’re facing every day.
Electoral Fraud: The second factor is the fraud in last November’s municipal elections and the resulting crisis of political legitimacy it has triggered. The electoral fraud of 1947, during the early days of the Somocista dictatorship, and what was known as the Kupia Kumi pact of 1974 [between Anastasio Somozo Debayle and Conservative caudillo Emiliano Chamorro] are the electoral precedents most akin to the current unusual, if not scandalous national situation growing out of the fraud.
Foreign cooperation cutbacks: The third factor is what I call the arrhythmia of foreign cooperation, to use a gentle or benevolent term. Some say we already faced something like it in the eighties, but in that decade only the US government cut aid to Nicaragua, as part of its brutal war of aggression; the rest of the international community continued pouring aid in. Now, in contrast, the arrhythmia is generalized. I think it will go on for some time if the representatives of foreign cooperation—who, together with the Bishops’ Conference have reacted to the fraud with the greatest institutional integrity—maintain even a minimal basic coherence. None of us wants them to, but the objective facts tell us that the countries that have taken on the task of covering our budget deficit, among many other deficits, aren’t likely to see any improvements in the short run; the fact is that governance, like social equity and public finances, are dangerously ill in our country.
Tax reform: The fourth exceptional factor is the government’s promised tax reform, which has not been respected in the least. This is both rare and new. For better or for worse, there hasn’t been the slightest tax variation in these first two years of government, either to confirm the structures of power or to make an important change It’s the first new Latin American administration in several decades to maintain a tax inertia. This two-year silence gives us license to paraphrase the Protocols of the Wise Men of Zion: ”One cannot govern with justice without an opportune tax plan. Even heroes who follow a sure road perish along the way without a defined plan.”
Constitutional reform: The fifth atypical factor, a dagger poised to fall on us from above, is the constitutional reform to transform the political system from a presidential-ist regime to a parliamentary one. As can be seen, the list so far combines exogenous factors such as the international crisis, factors of the recent past such as the electoral fraud, an ongoing factor like the arrhythmia of cooperation based un unfulfilled promises, the non-existent tax reform and surprising fiscal lethargy, and the constitutional reform, which is not an unfulfilled promise but a forecasted tsunami.
The change of political regime that President Ortega wants to institute this year is certainly exceptional. The country has never experienced a constitutional reform of such magnitude, with the honorable exception of the 1995 reform, which did not involve a new political regime. In my judgment, however, it did bring in important elements of institutional democratic renewal that, despite all their limitations, have represented the best constitutional reform in the country’s history. The current structural political reform has been announced for this year, and will happen unless we organize a vigorous national opposition movement to prevent it on the grounds that it will be economically, politically and socially traumatizing. Imagine postponing the reactivation of investments and employment, thus setting aside any effective fight against poverty in order to embark on a Byzantine debate about whether we can best govern ourselves by the French, Spanish or Russian model, as if Nicaraguan stomachs could be filled better by introducing exotic models and putting up with such manipulation by politicians.
Announcement of a “radically different” system: The sixth is that we have a government that’s announcing a profound change in the reigning social and economic model, a “radically different” system. This is indeed an extraordinary and also novel factor, rivaled only by the government of Zelaya at the end of the 19th century and the FSLN in 1979. Violeta Chamorro never said or did such a thing, nor did Arnoldo Alemán or Enrique Bolaños, although from 1990 a market economy replaced the state economy, which all three of them supported. Now, after 16 years of crude neoliberal-ism, of a process that reversed the transformations of the Sandinista decade of the eighties, nothing short of a change in the socioeconomic model is being announced. That offer, which doesn’t come along every day, unquestionably constitutes a singular element that must be thrown into the blender of our analysis.
A parallel budget: Factor number seven is that this is the first time the national government is simultaneously executing a parallel budget. All Venezuelan cooperation as well as the oil agreements with that country, representing hundreds of millions of dollars in public resources in two years—have been managed outside the budget. This dual budget game is another unusual factor in our public finances. The government has been very open about its decision to continue administering these funds without any changes, alleging that it’s an operation between private parties—”Nicaraguan and Venezuelan businesses”—and as a result doesn’t generate any public debt. The International Monetary Fund let this pass without comment, as if it has nothing to do with it, exhibiting an astounding weakness in its normal, well-known behavior. Paul Krugman was on the money when he described the IMF programs as the application of Victorian morality to fiscal policy. The discussion of the 2009 national budget, which has yet to be approved, would be a good moment to expose to open and democratic debate this dual public budgeting policy that is bleeding the national finances.
Presidential austerity plan: Finally, the eighth factor is Executive Decree No. 02-2009, announced on January 20 to deal with the international crisis. While neither new nor exceptional, it must be taken into account as part of the framework for analyzing fiscal policy.
We tend to undervalue theOrtega y Gasset once said that faced with complex situations “in which we do not know what is happening to us, that is precisely what is happening to us.” His thinking could be applied to our current situation. I think what’s happening to us is that we haven’t sufficiently figured out and interpreted what’s going on, although paradoxically it’s right in front of us. In attempting to do so, we mustn’t forget these eight factors, which are essential references for analyzing the national situation and particularly the fiscal situation as a whole.
significance of fiscal policy
Fiscal policy, the beloved child and essential part of economic policy, is an expression of the social contract endorsed by the citizens of a nation to achieve the common good. Tell me what taxes you pay and I’ll tell you what country you have. Tell me what your taxes are like and I’ll tell you what country you are or want to be. The history of peoples is known and understood when we inform ourselves about their fiscal policy. The social, economic and political life of a country is summarized, portrayed with maximum fidelity in its fiscal policy, which acts like a letter of introduction in much the same way that a person’s CV is the synoptic presentation of his or her trajectory.
The fiscal situation also materially expresses a society’s conscience about the common good. Although it may not seem like it, fiscal policy involves governance above all, which implies democracy and social peace. When we in Nicaragua think about a crisis of governance we tend to think only about the recent electoral fraud, forgetting fiscal policy, even though tax policy is more than anything else an essential factor of democratic governance.
First off, we must assimilate fiscal affairs as a two-sided coin: on one side is income, i.e. taxes, and on the other is spending, or the budget. And of course we can’t forget the edge of this gold coin, which is the domestic and foreign debt. It’s impossible to formulate an adequate fiscal policy only taking into account taxes and other income, neglecting spending. Nor can one forget the edge, the debt. A government can promote a fiscal policy aimed at greater social justice and equity, earmarking more resources in the budget for social spending and public investment, but if it only deals with this side of the coin and forgets the other, ignoring the unjust tax structure and the fact that taxes are being paid asymmetrically, the lack of equity in tax collection will clash with the desire for equity in the budget. It won’t work if on the one hand we have a spending policy that claims to seek greater levels of social justice, with a profoundly unjust income structure on the other, or vice versa. If we don’t harmonize these two spheres, the advances will be partial, just simple patches, and we’ll have a distorted vision of reality.
The income structure of our tax system is profoundly unjust and inequitable and its collection quality is low. I don’t know anyone who denies it. And it hasn’t been touched in the slightest by the FSLN government. But before getting into this, I need to talk about the absence of any basic awareness of the sense and transcendence of public finances among public officials, institutions and also society.
Terrible things are happening I include society because many events are passing before our eyes that trouble us, provoke us, poke us, massage us, whisper in our ear, shake us, yell at us and even may briefly wake us up, but we don’t really take on board their seriousness or their consequences. We still aren’t reacting with the appropriate indignation.
before our very eyes
I want to mention some of these financially barbarous events, euphemistically called “fiscal indiscipline,” which express a grave underlying problem. They are tangible examples that reflect how the discretionary management of public finances is proliferating. I say “reflect” because these facts in themselves aren’t as important as the essence of the problem: they happen without punishment and hardly scandalize anyone, because for the most part awareness of public money, jealous protection of the common good, has yet to take root in the Nicaraguan mentality.
The Tecnosa Case: Cutting to the chase, let’s begin with the Nicaraguan Social Security Institute (INSS), the institution that collects the country’s most sensitive taxes: the 6.25% employees are charged and the 15% contributed by their employers to provide social security for workers in the case of illness, maternity and disability as well as guaranteeing us a pension when we can no longer work. What’s happening in INSS? Its funds are being discretionally employed for investments. The media learned in mid-2008 that the government was using INSS funds to finance one of its social programs, known as “Houses for the People.” This case was the object of a superb and highly praised journalistic investigation and became famous as the “Tecnosa case.” There were public protests in the wake of the revelation and the IMF insisted the money be returned to INSS. The government complied, arguing that it had been “nothing more than a bridge loan.”
Nonetheless, after that retraction, “Regulations for INSS Investments,” legislating how to invest that money of ours, were published in the Official Daily La Gaceta. The Regulations in question are signed by the INSS executive president, although the INSS law says such legislation should be signed by the President of the country. In my opinion they would best be regulated by the National Assembly, given the circumstances of the country’s financial crisis. But getting back to the case, the decree establishes that the 9 billion córdobas in sacred public funds currently in the INSS treasury can be invested to make them more profitable, as determined by a committee.
Naturally, we’re not questioning the objective of optimizing that public financial patrimony, but rather the pertinence and legality of the decree, which adds that three people will sit on the committee: the executive president of INSS (its signer), the INSS vice president and the director of economic studies (both of the latter officials under the former’s command). The Regulations specify that only two of these people need be present to make up a quorum, and article 24 clarifies that in case of a tie, the INSS president will have a double vote. How does that strike you? That’s exactly how it appeared in La Gaceta No. 146 of July 31, 2008. And this episode passed almost unnoticed! Meanwhile, the government has announced that part of those funds will finance “low-cost housing and support to production.” Hardly the definition of a bridge loan and not the kind of investment calculated to bring in the largest return.
The CGR: Now let’s look at another example. The Comptroller General’s Office of the Republic (CGR) is the state oversight body, institutional conscience of the nation and perpetual watchdog of the conduct of public officials, according to the Constitution. But in mid-January of this year, the media reported that the CGR has a “banking” policy through which its officials and workers can take out personal loans using resources assigned to that institution in the national budget. The beneficiaries state that the only problem with this is if the loan isn’t paid back during the respective fiscal year. As Lino Hernández Trigueros, one of the five comptrollers, told El Nuevo Diario, referring to the loan granted to his colleague, Comptroller Fulvio Palma: “Palma presented us with a situation that he described as a family emergency and got the loan. He has borrowed on other occasions and always pays. I don’t want to say I won’t drink from that well, because you never know what needs you might have, but I wouldn’t do that.” How should we view this conspicuous management of public money? What are the other 90,000 state workers waiting for to demand the same right from their institutions?
Some officials allege they can do this and much more based on article 32 of the Constitution, which says: “No person is obliged to do what the law does not mandate nor impeded from doing what it does not prohibit.” But that article refers to the individual rights of citizens, not the functions of civil servants. Articles 130 and 183 of the same Constitution establish that civil servants may only do what is established in their faculties and attributions. In other words, no public official or government body has more faculties than those granted by the Constitution and by law.
The comptrollers don’t need the law to tell them that their public institution’s budget isn’t a bank or pawnshop for granting personal loans. It’s enough that its specific functions don’t include taking funds from the budget to use for such loans. In addition, the Financial Administration and Budgetary Regime Law is clear and implacable on the issue. But that’s how things are in our country: while the government launches an austerity plan to save 1.3 billion córdobas, billions more are being lost in these kinds of illicit practices.
The National Assembly: Let’s move on to our legislative body. In El Nuevo Diario on November 25, 2007, the president of the Assembly’s Economic Commission, Francisco Aguirre Sacasa, charged that the commission received grant requests totaling 2 billion córdobas for nongovernmental organizations headed up, supported or sponsored by legislators, some of which didn’t even have legal status. Buried under the avalanche of requests, Aguirre Sacasa declared: “It’s a lot of money. Not everyone will be granted any because it would break the budget.” Two billion córdobas—nearly twice what the government claims to want to save with its anti-crisis plan—is a budgetary fortune! In the end, many of the requests were approved and civil society knows nothing about the amounts and evaluations involved. Which NGOs will be benefited by this year’s budget? How much money will they get? Obviously we aren’t referring to those that merit this type of financing, such as the volunteer Fire Department, Los Pipitos or the Red Cross.
The legislators themselves: On top of their hefty salaries—$5,000 a month—each of these 92 citizens receives a gas quota of 200 gallons a month. And not only do they not renounce that privilege—an in-kind income which is taxable under article 5 of the Fiscal Equity Law, though they don’t pay it—some of them are even pushing for an increase in the number of gallons following the drop in fuel prices. In other words, if with the rise in oil prices the 200 gallons were worth several thousand dollars, they now aspire to maintain that extra “earning” by receiving more gas!
We also know that the legislators are the only elected officials who enjoy the illegal privilege of buying vehicles without paying taxes. Here’s a charming piece of information: the hasty maneuvering to reestablish this shameful exoneration in the Organizational Law of the National Assembly in early 2007 led to a huge technical error that made it legally improper: under the new law the President of the Republic doesn’t enjoy this privilege, but the legislators do! What does that tell us?
And there’s still more with respect to our legislative representatives. Each is annually assigned 450,000 córdobas to be used for “social works.” With this money they generously build parks, gardens and little stretches of road, and pay for scholarships, burials and the like… In short, they do what they want and most don’t report what they spend to anyone. It’s a privilege totally outside the 32 functions that article 138 of the Constitution designates to the National Assembly. Are they public finances or regrettable perk policies?
The CSJ: Now let’s take a look at something very dicey that’s going on in the Supreme Court of Justice (CSJ) and other institutions. Everywhere in the world, funds captured from contraband and drug trafficking become national resources that automatically enter the public treasury, save two “exceptions” in Nicaragua’s case. Both, I might add, are absolutely unconstitutional, but that’s a discussion we can leave for another occasion.
The first exception was in the now-repealed Law on Customs Fraud and Contraband, which gave a third of what was recovered to the “denouncer,” another third to the “capturers” and the last third to Customs. The second supposed exception, still in effect, is found in Law 285 on Narcotics, Psychotropics and Controlled Substances. This 1999 disposition establishes that the product of the goods and fines seized from drug traffickers is to be distributed as follows: a fifth each to the National Police, the National Penitentiary System, the Ministry of Health, the National Council for the Fight against Drugs and NGOs working with prevention and rehabilitation programs.
The Supreme Court doesn’t appear anywhere in this divvying up, yet it’s currently taking millions of córdobas from the funds seized from drug traffickers. It’s very worrying that the top court in the country is violating the law and ignoring the crime of Malfeasance of Public Funds, established in article 452 of the new Penal Code. On January 27 of this year we read this headline in El Nuevo Diario: “Customs and Supreme Court fight over drug booty.” Given the charge filed by the General Customs Division, the money was found to be lying in the CSJ accounts in the Banco de la Producción. And we’re talking about large amounts: US$11.7 million was captured between 2004 and the middle of 2008, according to official figures, to which must be added over 500 light and heavy land, air and aquatic vehicles captured and appropriated for distribution among public institutions… God only knows how.
The aim here isn’t to disparage the effort of those who risk their life in the struggle against drug trafficking, but we can’t allow those funds to be illegally and scandalously manipulated based on unwanted legal resolutions that go against express law; they are public funds, after all! And to make the party even more fun, another public institution that represents society, the Public Prosecutor General’s Office, denounced this divvying up in La Prensa in December, not because it violated the law, but because it received “not so much as a smidgen” of the share-out.
The CSE: It’s time to move on to the electoral branch, which in addition to astral-sized slick tricks in the municipal elections last November, has also committed serious abuses with public finances. Let’s look at just one fleeting little case. Did you know that on one good day the Supreme Electoral Council (CSE), lord and arbiter of the popular suffrage, rerouted the social security contributions of its workers to other administrative expenses? And we all know well what happens when workers doesn’t pay into the Social Security Institute, even if it’s the employer’s fault: INSS doesn’t issue the “stub” and the worker can’t get treated, even though the Social Security Law states, at least on paper, that a worker’s rights will never be impaired by such employer abuses.
These are only some examples of how public finances are used and abused, violated with impunity, in defiance of articles 112 and 113 of the Constitution, which consecrate the National Budget as the guiding axis of the state’s financial activity. All this disorder comes at a same time in which the country is facing an international economic crisis and preparing to make savings through the government’s recently launched austerity plan. If we’re bothered by the parallel budget for Venezuelan funds, what anguish will be generated by the multiplicity of funds and ad hoc budgets that are cropping up everywhere we turn?
This year’s austerity planThe 2009 budget bill submitted by the executive branch last October proposed 33.8 billion córdobas in spending against 27.1 billion córdobas of income. Conclusion: we’re spending more than foreseen income at that time, leaving us 5.7 billion córdobas (just under US$570 million) in the red. All these figures should therefore be adjusted to reality before the budget’s official approval by the National Assembly, given the current economic conditions. Traditionally, international cooperation covers the budget deficit with donations and credits, but the current arrhythmia of cooperation means things are getting grim. The anti-crisis plan presented by the executive branch on January 20 proposed to reduce spending by 1.3 billion córdobas, but this won’t alter the deficit because income will drop by an almost equal amount.
The government’s plan, laid out in Decree No. 02-2009, is one of savings, of austerity. “This decree,” it claims, “is aimed at implementing a set of austerity measures to ensure savings in the public institutions….” It proposes things as small and concrete as the need to turn off the lights on time, keep toilet tanks closed, refill printer toner cartridges up to three times and use both sides of office paper…
Other than such administrative minutia, it’s a very deficient plan. The first deficiency is that it only affects spending, without saying anything about how to increase income. The second is that it only proposes savings in the executive branch, not in the other branches of government. Why should that be, if the President is the conductor of economic policy and author of the budget currently seeking approval? And thirdly, it only talks about 2009, without any medium- and long-term perspective.
It must be remembered that this little austerity program has an institutional, documentary mother of organized public policies—the National Human Development Plan—engendered by a government that seems embarrassed by its own paternity, given that it has never defended it with any faith or conviction. Furthermore, 62% of society doesn’t approve of this father [the government was elected by only 38% of voters]. The Development Plan clearly admits that the tax system is sickly: “In the past the power groups have limited modernization and fair taxation. The system’s regressive nature doesn’t exist because taxes are applied to consumption, but because equal treatment is not given to sectors with a greater capacity to pay…. In specific terms, the government is orienting its effort to reduce the exonerations and special treatments that fall to exports….” This is a formal commitment, a state promise, not a speech, yet the government has not acted on it. When getting down to the business of confronting the crisis, it seems not to have taken it into account. I suspect the government finds it comfortable to “do the task” in line with Tiberius Caesar’s graphic catechism: “The good shepherd just shears the flock; it doesn’t skin it.”
What’s the political economy What can we say about income? What’s the social logic of the tax system in Nicaragua and what’s the economic policy behind it? How are taxes inserted into our economic model and what impact do they have? It’s time to return to the concepts stated at the beginning: “Tell me what fiscal system you have and I’ll tell you what country you are.” There’s rampant inequity in the Nicaraguan tax system, and it hasn’t been corrected. What has the current government done about this? Absolutely nothing. In two years of government the National Assembly has approved 63 laws and the President has dictated 155 decrees, not one of which has been geared to change the national fiscal system, even minimally.
behind our tax system?
Nonetheless, they couldn’t do without some scattered contradictory novelties. For example, household electricity rates for sectors that consume less than 150 kw/hours per month continue to be subsidized. And those that consume fewer than 300 kw/hours per month are still exempt from the 15% value added tax, which is an incentive for the poor and some others. So far, so good, but Law 667 of August 21, 2008, established yet another subsidy, this one indefensible: those who consume between 300 and 1,000 kw/hours a month will pay only 7% value added tax rather than the standard 15%, which means that well-off sectors are also being subsidized. Who’s supposed to pay for this gift to sectors that don’t need it? What sense does it make to establish savings in paper and adjust toilets while giving money away in tax cuts for household electricity consumption in high-income residential neighborhoods like Bolonia, Altos de Santo Domingo and Las Colinas?
The plan was well received by COSEP, the big business umbrella group, which announced that it would also present its own national plan. But didn’t the government come in very late with its plan, not presenting it until the end of January? And when does COSEP plan to present its “integral and inclusive solidarity” plan for the country? Please allow me to borrow Eduardo Galeano’s ideas on that little golden word I just mentioned: “I’m saying solidarity, not charity. Charity humiliates. The African proverb is not wrong when it says: ‘The hand that receives is always underneath the one that gives.’” Doesn’t it seem that Galeano is the new translator of Business Social Responsibility?
The Nicaraguan private sector has a historic role to play. At the start of President Ortega’s administration, it met with him in the Central American Business Administration Institute (INCAE), but regrettably—as some leaders of the various chambers have recognized—it was just a parade of people looking for handouts. There was no proposal for the nation, no plan for the country. They didn’t go with the kind of economic and social logic befitting modern businesspeople. They went only to ask, to demand and to cry for incentives, stimuli. At least 10 business leaders lined up and each chamber asked after its own particular interests. And what did the President respond? “You’re the country’s best CPC!”
One public official who attended that meeting joked that it “didn’t result in anything, but at least they got things off their chests.” COSEP evidently doesn’t see itself going out to protest every day as if it were a political party, but it is obliged to actively forge a country with a minimum of decorum and social cohesion. COSEP has to be listened to, but things also have to be demanded of it. It also needs to be taken into account that COSEP isn’t the entire private sector, just its upper echelons, given that the great majority of the economically active population is involved in medium, small and micro businesses. Is there anything new in the fiscal policy for them?
As this government has already let two years go by without so much as prodding the tax system—thus showing that it doesn’t want to, or doesn’t have the conviction or desire even to try—it’s now our turn. I think that for technical and logical reasons and also because of an elemental opportunity, we must now oppose whatever tax reform the technocrats pull out of their sleeve “to save their honor,” because the cure would probably be worse than the illness. What we should instead do in this stage of crisis is seek equity and a fairer redistribution of public resources through the indispensable step of a fiscal dialogue. An authentic fiscal negotiation is urgently needed! We must organize national forums, a sort of civic crusade to learn what’s happening with incomes, who’s exonerated, what the special fiscal treatments cost the country, which incentives have worked and which haven’t, who’s receiving subsidies, what’s happening to salaried workers and the income tax... Virtually none of this is discussed or analyzed with any depth and seriousness.
Nicaragua’s tax burden is At around 18%, Nicaragua’s tax burden is quantitatively the highest in Central America. That means that 18% of the national wealth is assigned to payment of taxes. But that’s a theoretical figure for people, and a boring, useless and unintelligible one at that. What we need to know is how that 18% hits the different sectors; who’s bearing the burden; who are the net winners and losers in the fiscal system. Tax impact means where the tax burden is hitting socially and how it is happening materially. That’s the question!
the highest in the regions
The Gini coefficient measures social inequalities in economics. This econometric formula shows that when taxes are paid in a country the inequality should be reduced or tempered somewhat, although it certainly won’t disappear. But in Nicaragua the Gini coefficient shows that inequality actually goes up after the payment of taxes. Something’s happening to make us an exceptional case, and this is the situation we need to understand in a fiscal dialogue involving the government, civil society, business people, academic sectors, political parties and students, putting all the data and facts out on the table with no hidden cards. There’s sufficient moral and technical authority in the country to strip these affairs right down and offer realistic solutions and proposals in a frank dialogue that ends in a major fiscal agreement.
Why does inequality increase Let’s look at an example to understand that something weird happens after paying taxes. And we’re not only looking for this something in the sectors benefited with exonerations, because it’s sometimes hidden in other sectors that do it differently, i.e. indirectly, without need for exonerations. One of the most serious examples that shows why there’s greater inequality after taxes in Nicaragua is found in agriculture. The producers in this sector don’t pay taxes on their tractors, vaccinations, fertilizers or virtually anything else. This is justified as a stimulus to promote production. But must they also be stimulated by not paying taxes on their earnings? They produce without paying taxes, but shouldn’t they pay on what they earn? One law that’s over a decade old and was only made worse by the Bolaños government’s 2003 tax reform says that those who commercialize their products through a private company called Bolsa Agropecuaria (Agricultural Exchange) don’t have to pay income tax (IR). Article 110 of the Fiscal Equity Law (drafted, as always happens in our history, under the influence of economic elites, in this case during the Bolaños government and approved unanimously by the FSLN legislative bench) establishes that Bolsa Agropecuaria producers will have a “definitive retention of 1% on sales,” which will be considered their total IR payment.
after paying taxes in Nicaragua?
This means that thanks to this legal loophole a producer who didn’t pay taxes on the purchase of a tractor or on inputs to produce peanuts, let’s say, then sold his production and earned perhaps half a million dollars only has to pay 1% IR, instead of the 30% he should be contributing. In the livestock sector he’ll pay 2%. This isn’t exoneration; it’s special treatment. Although it’s unpopular to say so, we’re obliged to tell it like it is. Why give this discriminatory privilege to Bolsa Agropecuaria? Who’s behind that private corporation? And who can get into that exchange? Cooperative members or small producers who grow 20 quintals of coffee? Hardly. The most important sellers in the exchange are the oligopolies and monopolies, although one can also see a couple of medium-sized producers in among them and even the odd small one. And how much does the Bolsa yield? No less than US$650 million in 2007 and US$680 million in 2008, which is a whopping 45% of the country’s exports. No income tax is paid on that $650 and $680 million other than the 1% retention! It’s a privilege of dramatic consequences that doesn’t exist in any other Latin American country. Or, said another way, if you sell your product in a private company whose name is Bolsa Agropecuaria you have a privileged tax system, but if you negotiate with any other company in the rest of Nicaragua you don’t. Where’s the principle of equality in that?
Cases such as this are why the payment of taxes creates inequity; because salaried workers are contributing more in income tax than large producers who go to the Bolsa to reap the benefit of a brutal privilege. Just imagine what it would mean if the government were to eliminate that benefit. That’s why I think that a tax reform in the hands of this government and a certain powerful private sector with its tentacles permanently outstretched and its opportunistic complaints, always asking the government for more “incen¬tives”—even more now with the international crisis—could terribly deform an already tremendously unjust system.
Greater rationality in income, even without a tax reform, could give the government between one and two million additional córdobas and much more security than the limited austerity plan it has proposed. Nicaragua has never had a rationally planned fiscal policy as part of a country plan. What we have is a series of dispositions and norms that come out of the National Assembly in a disordered legislative hemorrhage. The groups that pressure the most get the most laws. There are, for example, seven or eight laws in the energy package, but all have asymmetric, anarchic incentives that don’t reflect any national energy policy married to a fiscal policy.
We also have laws with “dedications,” like the one that establishes tax incentives to businesses that add fluoride and iodine to salt, to avoid goiters. The reward for doing this is that they don’t pay taxes on the import of machinery and equipment. But it doesn’t stop there; through a presidential decree—let’s remember that the President can’t legislate—they also ended up exonerated for local purchases. How many industrial salt manufacturers are there in Nicaragua? And who are they?
Will the gift of not paying taxes make us more competitive in Nicaragua or will competitiveness come through stability and governance? It’s one of those million dollar questions. Guatemala has no Tourism Incentives Law at all, while Nicaragua has one of the most generous tax exemption laws for tourism in the world. Nonetheless, tourism in Guatemala is five times greater than in Nicaragua. Multiple factors make the difference, and an exoneration pales in comparison.
Given the course the government is following and the signs it has already given us, opposition to the tax reform and the struggle to hammer out a fiscal agreement is a legitimate and unpostponable goal for the nation in 2009, a duty and a task for each Nicaraguan.
What kind of system change? Where’s the announced burial of the neoliberal model? We must constructively tell the government what it needs to hear, not what it wants to hear. We’re facing a reality similar to the one in Anderson’s brilliant story, “The Emperor’s New Clothes.” Let’s embrace the frankness of that boy who shouted the truth to the ruler when no one else dared do so, while the emperor, the man of power, was passing by impeccably ignorant of his reality: “He’s naked, he’s naked!” shouted the child… after which the entire town joined in: “It’s true, he’s naked, he’s naked!”
Let’s break the silence, without losing sight of reason. Let’s not get used to seeing things superficially and repeating what others say. These are tough times. Faith must be kept in a hundred drawers under a thousand keys. The same is true for hope, the kind of hope that Václav Havel questioned: “Hope is not prognostication. It is an orientation of the spirit, and orientation of the heart; it transcends the world that is immediately experienced, and is anchored somewhere beyond its horizons… It is not the conviction that something will turn out well, but the certainty that something makes sense, regardless of how it turns out.”
We need to struggle for greater awareness of the common good and against all unpunished abuse of public finances. This moment is sad for Nicaragua, but it is also pregnant with possibilities. This moment is hard, but it’s the time we were fated to live through and the reality we have to transform with joy and compassion.