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Friday, January 29th, 2016  |  USD: Buy 531.29 / Sell 543.92
20 years

Not much can be done about government mega-salaries, Costa Rican finance official concedes

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August 5th, 2015 (ICR News) Despite promises by Costa Rican president, Luis Guillermo Solis to rein in excessively high salaries, benefits and pensions of public employees, Deputy Minister of Finance, Fernando Rodriguez conceded that the government’s options are limited for the short and medium term during a Tuesday session of the Governing Council.

 

Rodriguez said that despite the government’s intentions to address the problem of excessive compensation in government – which Rodriguez defined as anything exceeding about ¢5.7 million per month – the administration’s ability to rein in the excessive cost of public administration is limited because of 320 public institutions only 40 are required to have their budgets approved by the Ministry of Finance.

 

A preliminary report presented by Rodriguez also showed that 48% of public employees fall outside regulatory coverage and the standard compensation scheme for public employees and that the salaries and benefits of more than 300,000 public employees were essentially untouchable as a result.

 

Those employees can be found working in the judiciary, Comptroller’s office, the Supreme Electoral Tribunal (TSE), the Ombudsman’s office, public banks, schools, public health facilities, and public universities, amongst other places.

 

The government’s budget for this year grew by 19% – or five times inflation – versus last year, despite continued calls from opposition lawmakers for austerity measures and the reining in of public spending to counter the country’ soaring fiscal deficit.

 

Costa Rica’s Central Bank last week increased its forecast for the government’s fiscal deficit for this year to 5.9% of GDP, up from its 5.7% forecast in January, and forecast next year’s deficit at 6.6% of GDP.

 

The country’s soaring deficit has led to a string of downgrades by international credit rating firms and investment banks.

 

In May, the United States’ largest bank by assets, JP Morgan Chase advised its investors to reduce their holdings in Costa Rican bonds, describing the country’s current situation as a “fiscal hemorrhage.”

 

Ratings agency Moody’s downgraded the country’s credit rating to “junk” status in September 2014, while earlier this year Fitch downgraded the country’s outlook from “stable” to “negative.”

 

Last week President Solis warned that the country “cannot handle another year” without new tax revenue, saying that he wants to address the issue of tax reform without preconditions.

 

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  • Ginger Morris

    A bunch of Idiots… Costa Rica is another GREECE, fat salaries and don’t what to give up anything. Taxes go up and who pays. Americans are going to leave if this continues. They have already 15% tax on every thing! Lets not for get the $29 each person that fly’s out of here, expensive import tax for goods, cars, computers, phones and all the companies that the Government owns… and NO ROADS… DO YOU KNOW THAT C.R. EMPLOYEES MORE GOVERNMENT EMPLOYEES THAN THE USA FOR ITS SIZE AND THEY ARE 50% IN -EFFECIANT BY 70%
    DISASTER COMING…

    • Ken Morris

      Did you read the article? Granted, it was a little cryptic, but it dealt with the structural difficulties involved in cutting public salaries. Go figure, people are actually working on this problem, but you appear to have missed that.

      Though gosh, thanks for pointing out the bright side. I didn’t realize that Americans might leave over this. There’s a silver lining in every cloud, I guess.

      And here’s an offer: If you leave (and stay gone) I will personally pay your $29 exist tax. Really, it’s on me.

      • Ben

        If anymore companies leave Costa Rica there will be no more money for the goverment to collect in Costa Rica. The end is very close in Costa Rica expect junk bond credit rating and big inflation in 3 to 6 weeks. The lazy and corupt goverment is scared to fire staff in the public sector. Expect IMF and World bank to come and say cut staff in goverment and sell everything and cut pensions just like they did in Greece. Soon you will buy bread for $10 dollars a loaf and milk will be $7 dollars a liter and rice and beans will cost 10 dollars a bag. Costa Rican will see real pain when they can´t afford to feed there families. If US citizen´s stop coming to Costa Rica for visits then all hell will break lose in Costa Rica.

        • Karen Mata

          It will be another Argentina. The dollar quickly tripled against the peso, and presently it’s 12 to one black market.

        • Ken Morris

          Ben: The issue of government mismanagement aside, I wonder if the claim that US citizens in Costa Rica are good for the economy is true.

          You do say “for visits,” so I guess mean to highlight tourism, and the economic impact of tourism may be different than is the impact of the expats.

          But I’m not sure that the economic impact of tourism is all that great. Yes, tourism pumps money into the economy and provides lots of jobs, but a some good part of the money is just swapped around among the foreigners and the jobs Ticos get are pretty lousy.

          In the extreme, think of the tourists who come and stay at the Hotel Del Rey or any of many similar establishments. These hotels are gringo owned, so any profits just go from one gringo to another. Ticos get hired as doormen, wait staff, sometimes a part-time tour guide, and very infrequently as manager. Meanwhile, although some Tica prostitutes earn trick fees (if you think that’s economically beneficial), about half the hookers aren’t even Ticas. Yes, the tourists pay a hotel and sales tax, but I doubt it’s enough to cover the costs of the public services like police and fire protection. I just don’t get how tourism is the goose that laid the golden egg.

          Worse, we don’t know what would have developed had tourism not taken root. There are several blocks in “Gringo Gulch” and more or less all of Jacó and Tamarindo that can’t be developed in any other way because they’re already developed for tourism. Every other business is priced out by the foreigners’ money.

          With respect to expats, I really don’t see what they contribute. Yes, some build retirement houses or buy condos, while others pay rent, but doesn’t this have the effect of driving up real estate prices for Ticos? Of course it does. Look at Jacó and Tamarindo. In the main, the Ticos who work in the service businesses that cater to the foreigners can’t afford to live in the towns.

          One gringo developer even included distant humble housing for those he called his “worker bees.” That’s what Ticos are in their own country in the eyes of some gringos.

          And contrary to some opinion, the expats don’t even pay much tax. Yes, they pay the sales tax, like everyone else, and if they bother with legal residency, they pay the healthcare portion of the Caja tax. But they don’t pay income taxes, the way Ticos at comparable incomes have to pay, the sales tax isn’t much, and the Caja tax is actually too low. Old expats can tally up some serious healthcare costs that others, including Tico taxpayers subsidize.

          I understand the theory of the multiplier effect, namely that every dollar injected into the economy gets swapped around multiple times and therefore helps several people. I also understand that when an economy has next to nothing, as was the case with Costa Rica when it initially set out the welcome mat for tourists and expats, a country has to do something fast to attract any money at all.

          But it seems to me that tourism and expats have outlived their usefulness, and even become part of the problem. Heck, Costa Rica has a cabinet-level Ministry of Tourism (that successfully resisted being demoted to sub-cabinet level) staffed with bureaucrats drinking at the public trough to promote, of course, their own jobs. It also has tourist cops, who want to protect their jobs too, and all kinds of finance people as well as lawy firms that make big bucks off the industry.

          In short, there are a lot of vested interests promoting this, and I for one don’t believe their numbers. They exaggerate the economic benefits and ignore the costs, not because it’s best for the country but because it’s for them.

          I’d like to see a serious and thoughtful analysis of US citizens’ contribution to the economy. Mind, I suspect that there is some, but I’m pretty sure it is a lot less than the myth and probably only beneficial to a few niche markets.

          Basically, when I see a gringo with maybe $2000 a month pension income sitting on a barstool and whistling at the Nica whores while paying rent to another gringo, I am hard-pressed to conclude that this guy is much of an asset to Costa Rica’s economy–or hell, it’s culture.

          • mhogan

            Gringos don’t contribute much to the economy, is that what you really think? Gringos (lumping Europeans, Asians, and Canadians into the mix of “gringos”), I’d say they are all that keep the country afloat. They bring their money into the country; many foolishly try to start a local small business before they realize it isn’t worth the effort; pay the “informal” gringo tax on everything they buy from a local (double the cost); if they own a home, they pay a lot of tax seeing as most of them are honest and declare the value of the residence to the Muni; they usually employ at least one local worker (domestic or caretaker) and pay the minimum government dictated wage with benefits; purchase vehicles and gas. Taxes?? my wife and I didn’t take any job away from Ticos as we were retired, yet we managed to pay Costa Rica $30,000 a year in taxes, for what? The pleasure of living in this hell-hole of corruption and violence against expats? Thank you, but we left a year ago for Panama and although not perfect, at least we don’t need bars on our windows or the heavy tax and “gringo tax”. In fact, as seniors, we get discounts on almost everything.

          • Ken Morris

            Instead of continuing to discuss this in generalities, since you bring up your personal situation and say you paid Costa Rica $30,000 a year in taxes, could you provide a rough breakdown of the taxes you paid? Thanks.

          • mhogan

            Actually I can provide you the exact taxes but will round to the nearest thousand (in colones): Ins. obligatorio car ¢18.000; sales tax ¢4.154.000; road safety adv. ¢16.000; car property tax ¢107.000; Muni development tax on car: ¢27.000; tax compliance costs ¢380.000; wildlife tax ¢104; Ley 7088 ¢1.000; aduana ¢451.000; postbox rental (necessary for tax authorities) ¢10.000; home property tax including taxes on water and garbage ¢3.815.000; seguro social ¢3.067.000; impuesto bomberos on electricity bill ¢123.000; gasoline tax ¢522.136; 911 charges on telephone bill ¢3.000; Cruz Roja tax on telephone ¢5.400; Corporation Taxes ¢719.000; INS employee risk ¢526.000; departure tax ¢165.000; well water tax ¢1.000; road tolls ¢8000. You will see our electricity bills were very high but I did not factor in the “social” tax for progressive rates. With these amounts in taxes, you will see we must have supported a lot of businesses in Costa Rica with our “imported” dollars.

          • Ken Morris

            Your tax situation helps explain why
            drafts of the last immigration reform law increased the income
            requirements high enough to ensure that only rich gringos acquire residency. You guys really pad the public coffers!

            However, I’m not sure you pad them by a lot. Almost half the taxes you list are either fees for services or
            offsets of costs the country incurs as a result of taxpayers’ lifestyle choices.

            A tax to support the fire department,
            for example, is just a fee for service. If this tax is higher for some people’s than others, that usually only reflects the fact that they are protecting more valuable property. To a large extent, even if people don’t use it, a health care tax falls into the category of a fee for service. Since the taxpayer might use the medical system (even if they don’t plan to) paying a tax to it is about like paying a tax to the fire department, just the cost of insurance. Likewise, though in this case a voluntary tax, the corporation tax is really a fee for service. Corporations give their owners certain special legal privileges and no one is forced to open corporations. Anyone
            who wants these special privileges therefore pays a for them.

            You also paid a fair amount of taxes
            associated with your motor vehicle(s). Since cars inflict a lot of
            negative externalities onto a society, fairly high taxes on them only really offset these negative externalities. Also, especially in Costa Rica, nobody has to own a personal motor vehicle—it’s rather a lifestyle choice—so if anyone chooses to drive, there’s no injustice in taxing them to cover the costs the society incurs as a consequence of their choice. I seriously doubt that the government made money off of you from these taxes; it probably only broke even.

            Where the government did seem to make money off you is in property and sales taxes. My goodness, you paid a lot of both.

            True, by owning real estate you
            indirectly raised the cost of real estate for Ticos, and therefore
            ought to have been compelled to compensate, but it sure seems to me that you overpaid this compensation. I think the government profited from a good chunk of the property taxes you paid.

            With respect to the sales taxes you
            paid, I’m baffled by how a couple could manage to buy enough stuff to pay this amount of sales taxes. Odds are that a good chunk of your
            sales taxes are attributable to a few big ticket items (including possibly a car, the taxes for which should probably go into another category), but regardless of the explanation, it’s pretty clear that the government profited from your sales tax payments.

            So let me just concede your point that on the balance the Costa Rican government profited from your presence in the country.

            However, the economy and society in general may not have benefited as much. True, insofar as the
            government profited from you and it used your money for socially
            beneficial things, your overpayment of taxes did help Costa Rica more
            generally, but I’ve already conceded the tax point and want to move
            onto others.

            Another credit you may deserve is for hiring employees. However, as I understand it, you mainly hired
            domestics, so weren’t providing people with particularly good jobs
            in the sense of either their compensation at the time or providing them with opportunities for upward mobility. Worse, you probably hired Nicas, since most domestics are Nicas, but even if you hired Ticos, you still increased the demand for the jobs that attract Nica migrants. This in turn burdens the immigration system here, while it
            also burdens the Caja and other public services, since low-wage
            workers don’t as a rule pay taxes sufficient to offset the costs they
            impose on the government. Thus, while on one hand you can pat
            yourself on the back for providing jobs for individuals eager to have
            them, on the other hand you did them few longterm favors and probably placed additional burdens on the society. On the balance, I would conclude that your hiring employees was a net wash, neither
            especially beneficial nor especially harmful to the society.

            Where it appears that you did
            contribute economically to the society was in your consumer spending. In general, I doubt that consumer spending is anywhere near as helpful to the local economy as gringos believe it is, since at the
            lower spending ends most of it only supports service personnel
            (cashiers, wait staff, etc.) in dead end jobs. However, you and your
            wife spent a lot, and since some of this spending does indirectly
            support farmers, manufacturers, accountants, and so on, I think you
            can take credit for having supported Costa Rica’s economy significantly more than most gringos.

            Mind, you may have supported the
            society in non-financial ways too. Some gringos do. They tutor
            children, participate in environmental programs, even sometimes lend their expertise to Ticos. Money isn’t the whole of it.

            Yet I think we can fairly conclude that your contribution of money—both to the government and to the private sector—benefited Costa Rica, so we really don’t need to go into the non-financial stuff.

            However, as I opened by saying, your situation may illustrate why Costa Rica would want wealthy gringos, but it doesn’t illustrate why it would want poorer ones—and most gringos are much poorer than you.

            Nobody knows the median income of gringos in Costa Rica, but my guess is that it’s somewhere south of $2000 a month. Of course, pensionado status still only requires
            $1000 a month and there are gringos like me with permanent residency who don’t have to have any income at all. However, just my
            impression, most gringos have incomes higher than $1000 a month. The average Social Security benefit in the US is around $1300 a month, and while some gringos live on this or less, others double it with a pension or similar retirement plan. Based upon my acquaintance with
            dozens of gringos in Costa Rica I’ve known well enough to have a
            sense of their incomes, I think Social Security is the mainstay for
            most, although most have some additional income from another source. My impressions conform to the results of an informal survey some gringos conducted a couple years ago showing the average incomes to be in the $1500 – $2000 range.

            Now, if we estimate the tax burden on a single gringo in Costa Rica with a $2000 a month income, I come up with a total annual tax in the neighborhood of $3000. This amount includes sales tax, their portion of the property taxes their
            landlords probably pay on their behalf, various nuisance taxes, the
            portion of their bus and cab fares that go to taxes, and the full
            health care tax on their income, even though we know that few pay
            this tax in full. (The ARCR even used to have a sweetheart deal for
            its members that allowed them to pay the tax only on the minimum
            amount required for their residency category rather than their true
            higher incomes.) I am also assuming that the gringo has bothered with legal residency, which we know that around two-thirds don’t bother with. Those who don’t also don’t pay the health care tax,
            which according to my calculations make up over half of the total
            $3000 annual tax bill, even though they still receive free emergency
            medical care.

            Does $3000 cover the cost of the
            gringos’ presence in Costa Rica? It doesn’t seem to. If we just
            divide the national budget by the population of adults, we
            immediately see that each adult needs to pay on the average of $4800 a year in taxes to the national government for it to break even. OK, the national budget is bloated and needs to be cut, but the fact is that this is what it is now, and the average gringo with a $2000 a month income isn’t paying his fair share.

            Worse, some of these average gringos are placing more of a cost burden on the government than the average Ticos. Chiefly, since they are older and more apt to have health problems than younger people, yet pay a health care tax that doesn’t increase with age, they sometimes receive far more in health services than they pay in health care taxes.

            So on the average the gringo expats cost the government more than they pay in taxes.

            Do they help the economy in other ways? Well, they don’t help the local housing market. Since they are able
            to pay higher rents than the Ticos, they tend to drive up housing
            prices. No doubt their consumer spending helps to stimulate the
            local economy, but at this income most gringos don’t really buy much,
            even as they tend to patronize gringo-owned establishments. As a
            result, they mainly help a few Tico bartenders and cashiers keep
            their jobs while gringos profit from other gringos. Meanwhile, many
            gringos, especially the single men, spend a good deal of their
            discretionary funds on prostitutes, and a few buy drugs. The money
            paid to prostitutes is not taxed, yet the prostitutes enroll their kids in school, visit the health clinics, and receive police and fire protection like everyone else. They are also enticed away from stable marriages, with all the changes in family structure that go with that, and even enticed into the country. About 40% of the prostitutes catering to gringos aren’t Ticas, and the demand for the illegal prostitutes just burdens immigration more. Of course, the
            gringos who buy drugs just fuel that problem.

            True, some gringos help the society in other ways—again by tutoring children and the like. Money isn’t
            the only way to be an asset to Costa Rica.

            However, I don’t know about you, but I haven’t met many of these socially contributing gringos. Instead I see lots of old goats sitting on barstools and consorting with the
            whores while badmouthing the country. Few speak Spanish, and just as few have even bothered to enroll in a class. It amazes me that a
            gringo can live in Costa Rica for 30 years (one case I know) and
            never have bothered to take a single Spanish class despite having
            done absolutely nothing except drink, watch TV, and consort with
            whores. Of course, this gringo believes that the Ticos are lazy and
            dishonest. He, simple because he was born in the US, is of superior
            character, at least in his own opinion. How the hell can anyone
            believe that gringos like this contribute to Costa Rica?

            Anyway, you make a strong case for
            wealthy gringos contributing to the society (whether they intend to
            or not) and Costa Rica may be losing out to countries like Panama by failing to provide these gringos with commensurate tax incentives.
            However, I don’t think this same case can be made for the vast
            majority of gringos in Costa Rica, and this was my point. The notion
            that these folks contribute to the society merely because they burn
            through a couple grand a month on a protracted party is ridiculous.
            The numbers don’t even add up, and this is before we estimate their
            non-financial cost to the society.

          • Karen Mata

            Love CR. The people, the quaint vibe (from 1991), but after many years the changes started coming too quickly. In 2011 moved south of the border.

            The COL, people, and restaurants here in David are great, but still look forward to returning to Rohrmoser.

      • prdatki

        Dam boy you talk a lot but your are stupid.

        • Larry Worsham

          At least he knows how to communicate!

      • Karen Mata

        Ken, you’re a sharp fellow and I’m happy to see you are still contributing here. Quite the sport I may add.
        Myself, I’m just a federal service academy dummy.
        I’m writing as it seems the subtext of most of your posts seems to be fear of reprisal should you speak ill of CR.
        I’m willing to wager the jackboots have paid you a visit…??

        • Ken Morris

          Thanks, Karen.

          No, the jackboots haven’t visited, and while I do try to take care lest I defame anyone (big trouble in Costa Rica), I don’t fear reprisal.

          I’m also quite willing to be critical of Ticos, I believe.

          What annoys me on discussion boards like these is the attitude expressed by some that gringos are automatically smarter and better than Ticos, and therefore the mere presence of gringos in the country is a blessing to Costa Rica. I don’t mind fact-based criticisms of whatever, but it doesn’t seem right to me to call Ticos idiots.

          I guess, as they say, some of my best friends are Ticos.

          BTW, I seriously doubt you’re a dummy.

  • Yeims

    Taken as a whole, the government seems to be a monstrous money sucking machine that has spent decades in conditioning the citizens not to expect much of anything from the government.

  • disgusted

    Pig trough theory. the more and more government can collect are never satisfied. Now a bill in the legislators are debating increasing taxes on love hotels and few other business to 60% ( currently 23%). Why to pour more money into the trough to feed on. As businesses whose margin is razor thin or in debt are closing and collapsing under all the regulations. More unemployed here Like closure recently of 200 employees that are supporting their families now have no job, money and lost hope. Rawlings wants to eventually move the baseballs for MLB to Vietnam why the high cost of business here. HP, Intel, Call centers global park, Jacks, Mabe, Rawlings, Jockey, Wendy’s, Burger King, Downtown commercial all closing or serious downsizing. So nothing can be done? Right Mr. President Solis?/ oh wait more taxes.

    • Ben

      Your right nobody ever talks about all the small business closing in San Jose. I guess the real unemployment number is 18 to 20% not 11%.

  • Ben

    Costa Rica is in real trouble. Anymore Taxes and what is left of business will run fast out of the country. The lazy Public sector workers need to be put on contracts 1 to 2 years. Most of the public sector workers do very little and like it that way. Fire all the public sector workers and let them compete against new workers that will take there jobs for honest pay. I just heard that HP and IBM are planning a major layoff soon so expect Costa Rica goverment to start saying the pension system has no money.
    If Costa Rica goverment does not fix all the problems then Greece will start to look good. I heard the real unemployment number is 18% not 11% that goverment of Costa Rica says.

    • disgusted

      My three friends here work for a bread/mini super make 300,000 or 150,000 every 2 weeks. IF they make error on change they have to make up the difference. Work 6 out of 7 days. Subtract the dreaded Caja fee’s they can only rent a cheap apt. in a bad area takes half of their pay. The other half Lights/water/bus/school for kids. In other words live paycheck to paycheck never ever able to save and in debt. So the unemployment is like 20% under paid much higher. It is a difficult life here. Then they hear and read the government spends thousands on booze and entitlements a lot of anger/fustration and hopelessness.

      • Ben

        I know thing are bad in Costa Rica i closed by business 2 months ago and let 8 staff go. Breaking even is no way for a business to survive. Even coffee farms are having a hard time in Costa Rica. I paid my staff more than $600 a month that,s why they where crying when i closed up my business. Nobody really talks about all the small business that are closing in Costa Rica. I know 12 small business that have closed in the last month and around 130 staff are now looking for work. What is next in Costa Rica 25% unemployment and soup kitchen´s like Greece. Thank´s public sector workers and lazy Costa Rica goverment for screwing everyone. Can´t wait for IMF and World bank to come.

        • prdatki

          Why do members of Congress get over $4,000 a month for retirement, ex president well over 10k a month. A driver for ICE make over 4k $ a month.You think that could be apart of the problem???

          • Ben

            The goverment of Costa Rica only takes care of them self. Business in Costa Rica are sick and tried of seeing there hard earned taxes stolen by goverment. You might see a latin spring soon in Costa Rica and Central America and could get very messy worse than Greece. The pension system in Costa Rica is soon going to have to change it will have no choice after the IMF and world bank and credit agency say there no more money for lazy corupt Costa Rica.

  • prdatki

    I have a very good way to reduce Govt and Public sector pay, Any one making over $3,000 a month is shot/ executed. After ten or more are killed you will see mass voluntary reduction in pay.

    • disgusted

      You sound like a dictator or wish you could be one. When the system set up by political machine to harvest money from those who do the hard everyday work for a living and legislate their huge salaries,, entitlements, gas, dinners and liquor and pensions of 10′s thousands of dollars! yes something is wrong here. However, that is how the Tico’s want it and seem not to care, why should we?
      I like to have all public employees salaries posted everywhere. Like immigration offices, OIJ, ICE so we can all see how much they are getting and watching them sitting on their collective behinds.. Not serving us making we the people wait and stand in long lines, While they are gossiping and drinking coffee or not even showing up for work.

  • PR

    Simple solution – Devalue CR colon to the level for reasonable salary level.

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