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Fiscal emergency declared.

Puerto Rico's new governor declared a fiscal emergency because of the island's darkening budget forecasts and a towering deficit of US$3.2 billion, reports AP (Jan. 9, 2009):

Gov. Luis Fortuno, who on Jan. 2 inherited an island government that is battling a lengthy recession, proposed a fiscal plan calling for government agencies to slash operational costs by 10% in order to bring revenue and expenditures in line;

Fortuno, a Republican who is the leader of the pro-statehood New Progressive Party, said failing to take immediate action to rein in spending would put Puerto Rico's economy in a calamitous depression. "The present deficit of US$3.2 billion is the greatest, in percentage terms, of all the (U.S.) states. As I indicated in my inaugural message, there is no doubt that the crisis we face is very serious, but we are going to move ahead";

A two-year moratorium on corporate tax credits and an additional 5% tax on corporations doing business here are among the measures proposed by Fortuno to shore up Puerto Rico's fragile fiscal state. He also called for a gasoline tax to be boosted to 40 cents per gallon from 16 cents per gallon, and higher taxes for alcohol and cigarettes. Income taxes for islanders with an adjusted gross income of more than US$100,000 must be increased by 5%percent, he said;

Fortuno and his economic advisory committee rejected any proposals to reduce the size of Puerto Rico's sprawling government of full-time workers, which employs 200,000 people out of a population of 3.9 million. Instead, his team plans to institute a hiring freeze and called for the dismissal of 11,000 part-time public employees;

After a two-month study of the economy, Richard Carrion, president of the Economic and Fiscal Reconstruction Committee (and a prominent local banker), advised Fortuno not to lay off full-time workers or boost an unpopular 7% sales tax to reinforce government coffers. The advisory committee has warned that PR is on such shaky ground that it might not have money to pay public employees in the next three months. In August, government requested a US$500 million credit line from the state-owned bank to pay 120,000 workers. During the Nov. 2008 gubernatorial campaign, Fortuno, 48, promised to reduce the tax rate and create thousands of private-sector jobs;

Revenue was hurt by lower tax revenue following a three-year long recession and the negative impact of tax credits. Spending is expected to reach US$10.3 billion, 8.6% above budget, hit by a US$500 million deficit in the health insurance plan and a US$100 million deficit at other agencies.
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Title Annotation:PUERTO RICO
Publication:Caribbean Update
Geographic Code:1U0PR
Date:Feb 1, 2009
Words:443
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