Torrijos announces tax cuts, spending programs

Promises to lower taxes, hire more cops

Torrijos opens National Assembly session in campaign mode
by Eric Jackson

President Torrijos opened the new legislative session on March 1 with some promises of the election year sort. Hailing a high economic growth rate during his administration, he said that "the principal factors that have generated such impressive figures have been the dynamism in construction, which has grown about 20 percent in the last two years; the increase in exports and solid public finances that have generated investor confidence." He claimed that in his time in office unemployment has declined from 11.8 to 6.4 percent.

Now it's time for tax cuts, and the president said he'd send the National Assembly a tax package that cuts the taxes owed by the lowest bracket of income tax payers, those 40,000 or so people who make between $800 and $860 per month, and smaller tax cuts for those who make between $860 and $2,500. He also promised a full tax subsidy for the interest paid on all mortgages for homes worth $30,000 or less and partial subsidies on interest payments on houses worth up to $80,000. All told, Torrijos said, some 110,000 Panamanians would see their disposable incomes rise through these tax cuts.

In the agricultural sector, the president promised to eliminate duties on products not grown or raised here and expanded subsidies to rice, meat and fresh vegetable farmers. For subsistence farmers, Torrijos promised subsidized seeds and farm implements.

He also promised bonuses for teachers who work at public schools in remote areas that are difficult to reach.

Torrijos also said that he plans to add 2,000 officers to the National Police, combine the National Air Service and National Maritime Service into one organization and create a new National Border Service, and build six new prisons, one of them for juveniles.

In gross terms, Panama's public debt is pushing steadily upwards in the direction of $10.5 billion --- it was $10.477 at the end of January --- and would go up from this combination of tax breaks and spending programs, and even more so due to the canal expansion project, although this latter item will be "off the books" by government accounting methods.

According to the Fitch bond rating service the debt is at 54 percent of Gross Domestic Product and is higher than in most of the Central American countries. The company warns that high public debt and high inflation are the main dangers to the Panamanian economy and recommends cuts rather than increases in public spending.

However, given the growth of the economy and of inflation, supporters of the government's policies argue that in real terms Panama's public debt isn't really growing much at all.

Two opposition presidential hopefuls panned the president's tax cuts. Supermarket baron and Cambio Democratico leader Ricardo Martinelli and former banker and Panameñista primary candidate Alberto Vallarino argued in La Prensa that the minimum tax on businesses that show no profits of their books but generate a certain amount of gross activity (CAIR) needs to be eliminated because all of this gets passed on to consumers and the tax has become one of the major drivers of inflation.

Another Panameñista presidential hopeful, former legislator and Bonlac dairy scion Marco Ameglio, told La Critica that with the CAIR Torrijos is "asphyxiating" small and medium-sized businesses and using such proceeds as there are for political self-promotion. He pointed out the president's forays into remote rural villages, where he makes political speeches and passes out envelopes containing $35 to families who promise to keep their children in school.

In El Siglo economist Alexis Soto of the National Agricultural Organization (ONAGRO) concurred with Martinelli, Vallarino and Ameglio about the effect of CAIR, and added that the weak dollar, high fuel prices and heavy speculation on certain markets were also driving inflation and likely to eat up much of the benefit that people might get from the president's tax cuts.

For the secretary general of the SUNTRACS construction workers' union, Genaro López, the problem with this and previous administrations' tax policies is that the burden is being shifted from a somewhat progressive income tax to a much flatter tax on sales and services and thus despite what the appearances created from income tax cuts and exemptions the share of the cost of government functions that working people pay is actually going up, even as such public services as education, health care and infrastructure maintenance are being starved for cash. He called for a completely new tax system that progressively charges more to those who can afford to pay more.

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