Costa Rica Government Promises To Moderate Salary Increases

The Government proposed a fiscal plan to the International Monetary Fund (IMF) which includes a moderation in wage increases for public employees in the next four years.

Such a moderation implies that the increase in total salary, including bonuses or perks, will not exceed inflation.

Up until now, the unions have typically negotiated the increase in the base salary, but as many bonuses are calculated based on this, the increase ends up being greater than inflation.

For example, the first increase enacted by the government will have an annual cost of ¢62.570 million. This is because it yielded 4% in overall salaries and a 5.14% for those who earn less than ¢ 381,000 (the minimum salary in the Government).

The fiscal plan proposed by the Government to the Fund aims to reduce the fiscal deficit of the public sector by four percentage points in four years.

For this year, the Central Bank estimates a deficit us 5.8% for the low overall public sector (including government, Central Bank, and a group of public institutions).

Increased Taxes:

Other measures included in the plan put forth by the Government are transforming the sales tax to a value added tax (VAT). VAT would be charged on goods and services. In this sense, the Government accepted the recommendation of the Fund to raise the current rate of 13% to 15%. It would be a point more in 2016 and another in 2017.

New measures also include global income (all income to calculate tax is added) and world income (you would pay in country for income earned abroad) and also the rate would increase by an amount not yet announced.

Lorenzo Figliuoli, head of the IMF mission for Cost Rica, said that the agency supports the plan. According to Figiuoli, the measures on the revenue side should contribute 2.5% of production and 1.25% of spending. Therefore, the IMF estimates that the measures would generate an adjustment of 3.75%.

The Finance Minister, Helio Fallas, said that the actions do not include a public employment law, but that does not mean he will abandon the issue of collective agreements.

What’s the reaction so far?

On the side of the unions, Albino Vargas, general secretary of the National Association of Public and Private Employees, said that they preferred that the issue of income is discussed before the IVA issue.

He further noted that the issue of salary adjustments should be discussed in the negotiating committee of salaries of the public sector, which the will carry the subject of “disengagement”, which is to break the bond between the salaries of doctors and some categories of the public sector.

Luis Mesalles, of the Union of Chambers and Associations of the Private Business Sector (UCAPBS), is aware of the gravity of the fiscal problem, as the IMF says. He stressed that, for the sector, it is vital that the Government show a better use of resources and the discussion of a public employment law. On the revenue side, support the modernization of the tax system, including reforms in VAT and income.

Photo by Eyleen Vargas and our thanks to our friends at La Nación – Costa Rica’s largest and most influential Spanish circulation newspaper for their permission to summarize their articles which originally appeared at Gobierno se compromete a moderar las alzas salariales.

Andrew Makarik

to@welovecostarica.com

Andrew Makarik is the main editor of WeLoveCostaRica, a fan of this sunny country. He is also a loving husband and a has a lovely daughter. By being a devoted family man and the biggest Costa Rica fan, he wants to make more people feel at home there. WeLoveCostaRica unites people and helps them find new home or a new travel destination. This website is a friendly community where everyone can find not only information, but also new friends and travel pals. Andrew is also passionate about IT and programming, so he himself maintains a friendly atmosphere in this cozy environment of WeLoveCostaRica.com.