Legislative leaders say tax reform differences with fiscal board are manageable
SAN JUAN – The executive director of Puerto Rico’s Financial Oversight and Management Board (FOMB), Natalie Jaresko, spoke Tuesday about the panel’s objections to the tax reform bill with the legislative presidents, the chairpeople of the Treasury and the Treasury secretary.
“Many of our concerns stem from the delay in implementation and changes in the bill, which reduce our confidence in the Commonwealth’s ability to realize the revenues in advance of paying for tax credits and rate reductions. The Certified Fiscal Plan requires that any tax changes must be revenue neutral, that is, all tax reductions must be accompanied by equivalent tax increases, include confidence building elements such as behavioral adjustments and reasonable capture rates,” Jaresko said in a statement following her meeting with House Speaker Carlos “Johnny” Méndez Núñez.
“To ensure revenue neutrality, the implementation of any initiatives must occur sequentially, with the ability to ensure that initiatives are paid for before rates are reduced. The proposed legislation enacts the tax reductions simultaneously with the payfors, and does so very late in the calendar year, creating additional risk to the revenue neutrality required. Therefore, we are asking for additional confidence in the payfors to ensure revenue neutrality,” she added.
Méndez Núñez, meanwhile, said the legislature awaited additional information that can address the board’s concern about the additional guarantees required by the panel established by the Puerto Rico Oversight, Management and Economic Stability Act.
“If we achieve identifying those greater guarantees and greater savings in the government, they have no objection to the Tax Reform bill. So I think we are on the right track to achieve a reform measure,” Méndez Núñez said.
For his part, Senate President Thomas Rivera Schatz said discrepancies with the board can be resolved.
The three points of concern, the legislative leaders said, are having a greater guarantee of government savings that could mitigate not reaching revenue projections; receiving additional data about the impact on revenue from the legalization of off-casino gaming machines and removing language in the bill about the power of the Treasury secretary to reach tax agreements.
“We do not disagree with the third point. Much less with the second, the information had already been provided. And on the other matter, the Board promised to send some numbers to the Secretary of the Treasury, so we can all discuss them and be able to reach that agreement,” the House speaker said.
Jaresko’s request about the power of the Treasury secretary is “that the previously agreed-to language with the Government be included” again.
“There are still areas of the bill that continue to concern us as a matter of public policy, and it is our duty to talk about them. Tax initiatives such as these have not only fiscal effects, but longer-term economic implications, as they define our competitiveness going forward. We need to be thinking more broadly about implementing tax reform that makes Puerto Rico more competitive and improves revenue collection by simplifying the tax system, reducing the burden of compliance for individuals and business, and promoting economic development. There still is much work to do to achieve those common goals and we look forward to continue working with legislators and the current Administration to achieve those long-term goals,” Jaresko wrote in her statement.
“Put simply, there are no differences between the governor, the House and the Senate. Simply: There are three points the Board has now put forth that we think are reasonable and we can [address] them. If we had disagreed, we would have expressed it. It’s three points we think are reasonable and we think we can deal with it expeditiously with the numbers they do not have yet and that they promised to send them in the afternoon,” Rivera Schatz said.
Rivera Schatz said Jaresko did not specify how much greater would be the additional guarantees the board wants. In the bill that is pending final approval, the savings the government has to guarantee in case the expectations of the so-called Tax Reform are not met total $98 million.
“If the [argument the] Board brings is reasonable, with great pleasure. If not, then we confront them,” Rivera Schatz said.