Costa Rica’s official tax stats are deceptive. In 2008 the central government’s revenues equaled only 15.9% of gross domestic product. But as Cato Institute scholar Juan Carlos Hidalgo pointed out in a January op-ed in the Costa Rican daily La Nación, that number doesn’t include local taxes or taxes paid to government entities like the Institute for Tourism and the Institute for Agrarian Development. Nor does it include social security taxes, which rich countries include when they discuss their tax-to-GDP ratios.
Tally up the total take and, according to Mr. Hidalgo, the burden for Costa Ricans in 2008 was 23.1% of GDP. In recessionary 2009 it fell to 21.7%. Compare that to the U.S. overall tax burden of 26.1% in 2008 and 24% in 2009 (the latest year for which Organization for Economic Co-operation and Development figures are available), and it is clear that Costa Ricans are not undertaxed.
Nevertheless, the country’s fiscal deficit as a percentage of GDP rose to 3.5% of GDP in 2009 from only 0.2% in 2008. In 2010, according to the United Nation’s Economic Commission on Latin America, Costa Rica’s fiscal deficit was 5.2%, the highest in Latin America. The government forecasts a deficit of 5.5% in 2012.
The problem is government spending. While revenues as a percentage of GDP are forecast to be 7.5% lower this year than they were in 2008, expenditures as a percentage of GDP are expected to come in 29.4% higher. Most of that money is going into an expanded bureaucracy, which grew by 20% during the previous PLN government of Oscar Arias. Mr. Arias was also generous with salary increases. Tocqueville predicted it.
Now Ms. Chinchilla’s “reform” proposes, among other things, a 14% value-added tax on all goods and services to replace a 13% sales tax on goods only and tax hikes on small and medium-sized businesses. Far from simply raising taxes on the rich, as the politicians want people to believe, this proposal will hit ordinary Costa Ricans hard.
Check out the Costa Risa website (in Spanish). Tax increases are for the clowns.