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Dominican Republic: A Fiscal Apocalypse?

On the 4th of October, the Dominican government finally unveiled proposals for the new Fiscal Reform [es] following a controversial negotiation process with the International Monetary Fund (IMF). During a session of the Economic and Social Council, the Minister for Economics, Planning and Development revealed that the deficit had reached 148,564 million Dominican pesos (DOP) (6.5% of GDP), making this year's figures the highest in Dominican history.

The new fiscal reform, which is really a tax reform as it does not take into account government spending, has elicited discontent from all sectors –business, unions and civil society– who have united for the first time to oppose the reform. The bill, which has yet to be discussed in the House of Representatives, affects all social classes but hits the poorest and middle class hardest; 47% of the projected tax collections, estimated at 55,044 million Dominican pesos ($1,395,995,103.36 USD) will come from indirect taxation.

President Danilo Medina has tweeted that:

@DaniloMedina: Estamos enfocados en promover una reforma integral que garantice que la población cuente con las condiciones básicas para vivir con dignidad.

We are focused on bringing about wholesale reform which guarantees that the population can count on having the fundamental conditions to live with dignity.

Civil society is in almost unanimous agreement that the reform, far from offering better conditions to the less well off, is actually a way to finance the rampant corruption of the state, and avoid having to consider ways to improve the quality of government spending. The public completely refuses to support the reform if it is not accompanied by radical reforms of the government structure, including transparency in the use of state resources, freedom of information and social audit, as well as the imposing of harsh sanctions against those responsible for the current crisis. Pavel Isa Contreras, a respected economist, said on the subject:

@IsaPavel: Antes de discutir impuestos e ingresos, urge acordar qué es lo que queremos financiar, en qué vamos a gastar, quién gastará y cómo.

Before discussing taxes and revenue, we must agree upon what we want to fund, where we are going to spend, who will do the spending and how.

The current vice-president and former first lady until the 16th of August this year, Margarita Cedeño de Fernández, stated that:

@MargaritaCDF: Las causas de este #PactoFiscal son: el alto subsidio al sector eléctrico, deuda del país con el Banco Central y la caída de recaudaciones.

The causes of this Fiscal Pact are the high costs of subsidies to the electricity sector, national debt at the Central Bank and the drop in tax intake.

Nonetheless, Miguel Ceara Hatton, economist and former Director of the Office for Human Development at the United Nations Development Programme for the Dominican Republic, refuted this statement, asserting that:

@CearaHatton: Es falso que el subsidio eléctrico explica el aumento del gasto público. El aumento del subsidio es 10.6% del aumento del gasto total 2011-2012.

It is false to state that the electricity subsidy explains the increase in public spending. The increase in the subsidy accounts for just 10.6% of total spending in 2011-2012.

Consequently, until the facts which led to the current crisis become clear, and precise measures are put in place to put an end to the waste, the cronyism, and the corruption, and ensure that tax revenues are directed towards government plans which positively impact the lives of all Dominicans, the trade unions, business owners, social activists and civil society in general have agreed not to negotiate with the government on the proposed tax rise.

Some legislators have also expressed their disapproval of the reforms. The representative for the National District, Víctor Gómez Casanova, and colleague José Paliza, who represents the northern province of Puerto Plata stated:

@VGomezCasanova: La Propuesta de Reforma debe ser REFORMADA. No es una Reforma Integral, es más de lo mismo. Es hacer lo que siempre se ha hecho…

The Reform Bill needs to be REFORMED. This is not an complete Reform, it is more of the same. It's doing what has always been done.

@JosePaliza: Impuestos por soñar? “Hacer lo que nunca se ha hecho”.

A tax on dreaming? “Do what has never been done.”

Both legislators’ comments alluded to President Danilo Medina's electoral campaign, which included a slogan pledging to do what had never been done during his mandate.

Elsewhere, the studied economist, Jaime Aristy Escuder, predicted that the Reform would have a negative effect on the economy.

@AristyEscuder: La reforma tributaria aumentará los precios y el desempleo.

The tax reform will push up prices and increase unemployment.

Meanwhile, the Dominican public awaits the results of the evaluation and negotiation process which the Reform must undergo, fearing that its approval will mean a death sentence for the country's economy. The Economic and Social Council will meet this week to agree amendments, as will the National Congress.

Interestingly, in what appears to be perfect timing, on Monday, the 8th of October, Alicia Ortega [es], the famed investigative journalist, released a report on the construction of luxury residences with State resources [es] in one of the most costly neighborhoods in the country, properties which are currently inhabited by high-ranking government officials and their family members. With a little bit of luck, it is possible that this report, in conjunction with other scandals, will awaken the public from its lethargy and motivate them to mobilise en masse against corruption.

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