Inflation Moderating In Costa Rica

by Mike Godfrey, for LawAndTax-News.com, New York

05 April 2007

According to a bulletin from Costa Rica's Instituto Nacional de Estadisticos y Censos (INEC), consumer price inflation in the first quarter of the year stood at 2.04% compared with 2.24% for the same period last year. For the 12 months to March, 2007, inflation was 9.22% compared with 12.22% in the previous 12 month period.

The economy is generally in good shape. In 2005 there was an increase in exports by 12.8% and a 19% increase in the number of visiting tourists, reaching 1.5 million. Central Bank figures show 5% GDP growth for 2005 and 6.8% growth for 2006.

High tax inflows have continued to eat away at the government's deficit, which fell to only US$66.8m for the first eight months of 2006, representing less than 1% of GDP, compared with 1.3% a year earlier.

Revenues rose 22% over 2005, partly due to higher import tariffs. 2005 tax collections were themselves 20.5% higher than in 2004, reducing the 2004 budget deficit of 2.5%.

Government spending has however continued to increase, by 14% for the first eight months of 2006, and debt interest of US$560m more than wiped out a primary surplus of US$493m for the period.

Successive government have been trying for years to push a fiscal reform bill through the legislature, which would replace the existing territorial basis of taxation with world-wide taxation of income. Such good news from the economy will not encourage legislators to allow the government its planned tax increases.

Recommended