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Economist refutes revised Puerto Rico fiscal plan numbers

By on January 26, 2018

SAN JUAN – Economist Antonio Rosado refuted government figures in Puerto Rico’s revised fiscal plan indicating that the gross national product will decrease in 2018 by 11.2% and then increase gradually until 2022.

“My numbers show it is going to grow by 4%,” Rosado told Caribbean Business, explaining that the reconstruction underway to repair damage caused by hurricanes Irma and María in September will result in economic growth.

In an interview with CB, the former Santander Overseas Bank president urged the government to transform the current sales and use tax (IVU by its Spanish acronym) to a value-added tax (IVA by its Spanish acronym) under the proposed tax reform officials plan to draft because it would provide more liquidity to local coffers.

The five-year government fiscal plan relies on more than $57.2 billion that the island will receive in disaster relief funds. These are broken down into $35.3 billion from the Disaster Assistance Fund of the Federal Emergency Management Agency (FEMA) and $21.9 billion in insurance claims

Rosado said that if you divide $35 billion in 10 years, it would be $3.5 billion, a significant portion of the island’s gross domestic product, which is about $90 billion, so the economy should grow. In addition, the government and bank adviser recalled that investment levels grew after Hurricane Georges battered the island in 1998.

Revised Puerto Rico fiscal plan counts on injection of federal funds

The economist spoke with CB ahead of his participation in the annual Retail Trade Association (ACDET by its Spanish initials) forum on the future of the sector, which will take place at the Sheraton Hotel in San Juan on March 7.

In anticipation of his presentation, Rosado said he will speak about the state of the retail industry. One of his findings is that businesses that opened shortly after hurricanes Irma and María hit the island experienced a revenue bonanza despite having to spend large sums on diesel generators to operate.

However, he insisted that for the retail sector to grow, the government must eliminate the inventory tax and reduce business city taxes.

“We live on an island and you cannot penalize a business owner for having inventory because we as we saw it after the hurricane, it can create a crisis,” he said, referring to food and supply shortages that may have partly been the result of lower inventory levels to mitigate the tax.

Chamber of Food Marketing, Industry & Distribution (MIDA by its Spanish acronym) executives said in November the inventory tax “penalizes companies for having inventory” and that if there had been a greater amount of merchandise before the storm-related disruptions, “we would depend less on the agility of transportation systems.”

Rosado supported plans to eliminate the business-to-business tax and to reduce the tax on prepared meals, but reiterated the need to lower taxes on businesses. “We cannot have a 25% tax there [stateside] and a larger one here,” he said.

Although the government needs money to operate, Rosado said the government needs to restructure to avoid waste. “The government cannot say it needs money for its expenses because its expenses don’t make sense,” he said.

He believes it essential that the government look for ways to help local brick and mortar retailers compete on equal terms with online retailers. Local merchants compete at a disadvantage because they charge the sales tax on purchases while online retailers do not.

Although the government must wait for congressional action to obtain the sales tax for online sales, Rosado reiterated that “it can do something about the inventory tax and business taxes” to help local retailers.

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