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President Torrijos has called for a special legislative session that will begin on January 17 and take up reforms to the nation’s tax system and Social Security Fund. As this issue of The Panama News was uploaded, the contents of these changes had yet to be announced.

Some of the preliminary motions in the process may be instructive --- or may not be.

A number of business organizations had called upon Torrijos to put off consideration of tax reform pending more study and public comment, but those pleas were ignored. The Panamanian tax system is notoriously skewed in favor of the rich and many special interests enjoy exonerations and other privileges, and thus the ones who perpetually suspect any suggestion about changing the tax laws are from the upper end of the economic spectrum, with far less concern expressed by poor and middle class Panamanians who pay most of the costs of government, primarily through sales taxes.

However, the nation does not raise enough money to do the things that the government needs to do, and despite any attempt to point to a part of a tax reform package and extrapolate it as an overall tax cut, any “tax reform” that will be accepted by international financial institutions as such means a net tax increase when all of its elements are considered.

On the Seguro Social question, Torrijos accepted a report by Social Security Fund (CSS) director René Luciani early in December, but rather than disclose its contents he then appointed an interagency governmental committee to come up with proposals to be submitted to the legislature. Very pointedly, both labor and business representatives were excluded from these talks.

On the CSS board of directors, particularly in the previous administration but also during the first few months of this one, labor and management have been at an impasse, with starkly different ideas about what to do with the financially strapped retirement fund, the largest of the CSS’s several programs.

During the Moscoso administration the business representatives were promoting a “three pillars” proposal that would have essentially put most of the retirement fund under private management. But such a thing would be anathema to organized labor, which proposes to plug the fund’s actuarial gap mainly by transferring the remaining unsold real estate from the former Canal Zone to the CSS. That, in turn, offends powerful real estate and construction interests who want to get their hands on those properties at bargain prices.

There is more consensus about measures to reduce fraud, waste and abuse in the system, for example by more honest and efficient purchasing by the public health care system and retirement fund investment policies that generate more income than is presently the case.

The hot button CSS issues, however, will be about increases in contributions, decreases in benefits and increases in the retirement age. Organized labor has drawn a line in the sand over the retirement age, which is currently 57 for women and 62 for men. Similarly, business --- particularly small and medium-sized business --- is dead set against increases in CSS fees, which if they are too large would certainly drive a certain percentage of the companies that now pay into the system into the underground economy.

Although there is some debate about whether benefit cuts or contribution increases would be necessary at all --- the negative position being taken by some of those who dismiss projections based upon the past five or six years, during most of which time the economy was in an unusually deep and prolonged recession --- there is general agreement on both the labor and management side that the CSS retirement fund has a structural problem that won’t be solved just by eliminating fraud, waste and abuse. The disagreements are about how to resolve this actuarial deficit.

Although the special sessions are to be held while most students at the University of Panama are on vacation and thus it will be more difficult for the campus radicals to mount large protests, the chances are very good that labor and student groups will take to the streets to oppose whatever changes the Torrijos administration sends to the legislature. People who plan to drive around Panama City in the latter part of January should therefore expect some traffic blockages over the CSS issue.

















Also in this section:
Looking back at 2004
Gómez replaces Sossa, promises cleanup
Special legislative session on taxes, Seguro
Noriega wins in court, but torture victim vows to continue the battle
Panama News Briefs

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