Good news is coming out of the Economy and Finance ministry regarding the income derived from taxes and the lowering of expenditures of the government. As I have been harping on for the past year, this is exactly the reforms needed in order to fund the expansion of the canal with outside sources of capital. The boys at Finance have done a great job.
Last week we had both Fitch and S&P ratings raised and this week we will hear more about the details of the governments progress in getting their fiscal house in order. On the surface this is all good news and I am sure many of you wonder just why I would not be elated over it. The fact is that much of the burden of taxes are, and will continue to be, placed on our industry, the foreigners who come to live here and the working class, who will be left to shoulder the huge debt of what may turn out to be a white elephant.
As many of you know who have followed this blog, I made no negative comments about the governments push for the referendum last year in support of the canal expansion. I felt that if the world lenders want to invest money into a major infrastructure project, it is better to be here in Panama than in some other far flung country. I did not anticiapte that in order to get their fiscal house in order they would sacrifice our emerging industry which I consider much more effective in eliminating poverty and bringing forth a stronger and more democratic society than would the canal expansion. Instead of only enriching only a few, residential tourism begins by employing those in the interior of the country who need work the most. We have seen hundreds of new locally owned and operated businesses start in order to cater to the growing demand for services where none existed before. I won't go into another dissertation on the many benefits of residential tourism as I have expounded on the subject many times in the past. All one has to do is look at what has taken place in the province of Chiriqui over the last 5 years to understand my point.
The fact is that the canal is an infrastructure project that will bring short term benefit by employing locals, but only during its construction. Anyone in the interior will need to move to the city to work on the project. They must either leave their families or move them to the city, adding to the already over- burdened infrastructure. Those few elite who are involved in the many lucrative construction contracts will certainly benefit to a far greater degree, furthering the gap between the few rich and many poor. After the construction, which is expected to take about 8 years, what happens to those workers and their families? What further skills have they learned and what opportunities have opened up for them?
And, what about the ordinary Panamanian who lives in the interior, farming and scratching out an existence on the land. What change can they expect and what opportunities have opened up for them? The fact is, he and his descendants will be burdened by higher taxation and less benefits because of the much higher debt his country is in. Panama already has an extremely high debt to GDP ratio and although todays news appears to be reversing that, the construction project will quickly put the country into much higher debt demanding more and more taxes in order to cover it.
Here is the news from La Prensa
Panama's public finance numbers look good. In 2007, the country recorded a fiscal surplus of $683 million, the equivalent of 3.5 percent of its gross domestic product (GDP), which is a historical record, reported the minister of Economía y Finanzas, Hector Alexander. The surplus is much higher than that recorded in 2006 (0.5%) and represents a marked improvement over the red ink of 2005 and 2004, when the country ran fiscal deficits of -3.2 percent and -4.9 percent , respectively.
"It's surprising good news. A surplus of $200 million was expected, but this. . . The Government should use this to reduce the balance of public debt," said the president of the Cámara de Comercio, Domingo Latorraca. The change corresponds mainly to the boom in Panama's economy, which grew by 11.2% last year, and a rise in tax revenues that was driven by tax reform. But these figures for the non-financial public sector are not the only good news. The central government also recorded a surplus last year of 1.2 percent of GDP. Government savings, a key figure for measing the health of the system, jumped from $33 million in 2005 to $37 million in 2007, as the minister reported Wednesday during a presentation made to members of the Saving power of the state, key figure for measuring the health of the system jumped from 33 2005 375 2007, as reported Wednesday by the minister, during a presentation made to members of the Asociación Panameña de Ejecutivos de Empresa (Apede).
The surplus also reflects the fact that not all the investments budgeted were actually made. The State spent $973 million, or 270 million less than expected.
The president of Apede, Juan Carlos Mastellari, said that the Apede is opposed to the general wage adjustment that some sectors have asked for in response to rising inflation and the erosion buying power. He suggested the Government combat the problem another way: lowering tariffs, eliminating the CAIR, adjusting tax rates for the middle class and allowing school fees to be deducted from taxes.
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