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  • Writer's pictureThe San Juan Daily Star

Fiscal board agrees on one-time tax cut

Financial Oversight and Management Board Executive Director Robert Mujica, left, and Gov. Pedro Pierluisi

By The Star Staff

Financial Oversight and Management Board (FOMB) Executive Director Robert Mujica announced on Tuesday that the board agreed with Gov. Pedro Pierluisi Urrutia to grant tax reductions only during the current fiscal year.

The decision comes after the oversight board issued a statement last week stating that House Bill 1839, one of the largest tax cuts in Puerto Rico’s recent history coming only a year after emerging from bankruptcy, impairs and defeats the purposes of the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA). Accordingly, the entity prohibited the government from enacting, implementing or enforcing the measure.

“Given the current revenue performance above that projected for the fiscal year 2024, the FOMB believes that there is an opportunity to agree to some type of one-time, non-recurring tax relief for individual taxpayers for the current fiscal year 2023, within the framework of the spending priorities already established by the government,” Mujica said during a virtual meeting of the oversight board.

Mujica noted that conversations with government officials continue. By the end of this week, he expects to be informed of how much the tax reductions will be for individuals during the current fiscal year.

The oversight board’s executive director insisted that the cost of House Bill 1839, estimated at $3 billion for five years, could not be financed.

“We are still not convinced there will be enough revenue to finance such a broad tax cut, having just emerged from bankruptcy in addition to the other expenses approved by the Legislative Assembly,” Mujica said at a press conference. “However, this year, there should be a surplus in collections that should allow us to finance a tax benefit similar to the one that goes to individual income tax forms.”

“In the coming years, we are going to look at the budget, we will see the collections and take a broad, holistic look at all taxes to see if we can approve a [tax] reform,” he added. “But this agreement is for one time only. We will have future discussions on tax reductions, but there is still uncertainty, and we will not be able to reach a final agreement this year. We are convinced that the tax system needs reform. This agreement does not mean a reform, it is only a contribution reduction. So we will maintain conversations with the government to achieve real reform, both for individuals and for corporations.”

In his message at the virtual meeting, Mujica spoke on the oversight board’s concerns regarding future expenses.

“The report for the first quarter of the fiscal year will show that Puerto Rico’s current economic performance is better than expected, mainly due to decreased inflation, increased economic activity, and greater revenue collection,” he said. “However, there are significant spending obligations, including Medicaid costs, uncertain long-term funding for Medicaid, potentially new recurring expenses currently paid for with one-time federal funds, teacher salary increases, and additional commonwealth contributions to fund disaster relief projections. These obligations include salaries for teachers and correctional officers currently funded with one-time federal funds expiring in 2024. There is a need to ensure the budget makes room to support these long-term expenses.”

Additionally, he said maintaining higher funding levels for the University of Puerto Rico and municipalities, additional funds to cover greater local participation in the Earned Income Tax Credit, expansion of the Medicaid program, higher than estimated PAYGO pension costs, and requested salary increases for firefighters are issues that need to be discussed.

Taking on additional expenditures specified under incremental funding risks without a sustainable recurring funding source could create a budget imbalance, he said.

The Legislative Assembly has already approved legislation that affects the current year’s budget by $1 billion just months into the new fiscal year,” Mujica pointed out. It did not, he said, amend the budget to accommodate the new costs, but rather passed laws without considering the budgetary impact.

“No government can increase spending and reduce revenues for a prolonged period without threatening its fiscal stability,” Mujica said.

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1 Comment

Oscar Melendez
Oscar Melendez
Dec 14, 2023

Puerto Rico gets federal supervision by the Junta but Congress sends billions to the corrupt government of Ukraine without supervision. We need presidential vote and membership in Congress to get the attention of the corrupt federal government.

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