Costa Rica's Congress approved a series of controversial tax reforms Friday, promoted by the government of President Carlos Alvarado to face a fiscal crisis, despite protests from public sector workers, who have been on an indefinite strike for almost a month.
The reforms were approved with 35 of the country's 57 legislators voting in favor. The reforms will now face the Constitutional Chamber, which will rule on its constitutionality and will then return to Congress for a second and final vote.
"This reform is vital to give confidence to those who lend money to the country," said the president of the Congress, Carolina Hidalgo, during an interview with Reuters.
The main purpose of the tax reform is to convert the sales tax of 13 percent into a Value Added Tax (VAT) with the same rate, but this move will increase the number of taxed products and services.
Additionally, the legislation titled the Strengthening Public Finance bill, seeks to make adjustments to income tax payments and plans to reduce public spending by limiting wage and other benefits paid to public workers.
Protesters, mostly public workers, are opposed to the reform because of the impact it will have on the cost of living for low and middle-income earners.
"This fight will continue for social and fiscal justice, against increased levels of inequality in our country," deputy José María Villalta, told hundreds of protesters gathered outside Congress during the vote Friday.
President Alvarado, who was elected in April, is hoping to use the reforms as a signpost to international investors that the country is open for business, stabilizing their finances, reducing its fiscal deficit and limited the growth of debt. He has compared the reform to "a bitter but necessary medicine" to cure finances and avoid an economic crisis such as the one the country experienced in the early 1980s.
However, members of left-leaning Broad Front, National Renewal and National Integration parties have said the adjustments disproportionately impact the poor and that many of the proposals will limit state workers' labor rights.
Last week the National Union Alliance (NUA) said the government rejected a series of suggestions, which would have more equitably funded necessary reforms. “After five days of conversations and three proposals presented by the Social and Workers Unity, the government was incapable, until today, of reaching an agreement.”
Unions' had also proposed a bill, known as the Justice and Solidarity Tax Reform, focusing on combating tax evasion and fraud, increasing taxes on companies and banks that generate extraordinary profits, eliminating "luxury" pensions for former presidents, and reducing state financial support for political parties.
In a statement released Tuesday by the Broad Front, the party said it “regrets” that the dialogue between the government and unions broke down saying it was because of the uncompromising attitude of the Carlos Alvarado government “that the negotiations were not successful."
The party said they stand for a progressive tax structure where the rich pay what befits the rich and the poor as the poor. The Broad Front said they want authorities to put an end to fiscal fraud, which they say, is the main cause of the country’s rising deficit that sits at over six percent of Costa Rica’s gross domestic product (GDP). They added that the government is trying to make the working class pay for the corruption of the most powerful.
The left leading party also said they stood with unions and movements in their protests against the government’s bill. "We invite all our affiliates in the country, and the entire population in general, to join the different forms of struggle and collective protest actions that are carried out from the communities," their collective statement said.
At the end of September, the Central Bank of Costa Rica said it would grant financing to the Government for about 870 million dollars to help stabilize its finances.