Fiscal management paying off?
Treasury chief: General Fund income for first month of FY 2024 outpaced oversight board projections, year-ago figures
By Richard Gutiérrez
The financial situation on the island is a commonly discussed topic because of its importance and the ongoing controversy surrounding it. Puerto Rico has been facing an economic crisis for many years, but that doesn’t stop most residents from paying their taxes. Naturally this begs the question: Where is the government’s money going and how much money is the government generating, considering the financial crisis?
The answers to these questions could be seen as rather surprising and unexpected. On Thursday, the central government’s chief financial officer (CFO), Treasury Secretary Francisco Parés Alicea, reported that the net income of the General Fund for July, which was the first month of fiscal year 2024, reached $810.8 million, which represented $120.4 million, or 17.4%, more than was projected by the Financial Oversight and Management Board for Puerto Rico ($690.4 million) for that month.
“The income for the month of July exceeds the projection established by the Fiscal Supervision Board (FOB) [Financial Oversight and Management Board], by approximately $120.4 million,” Parés Alicea said during a press conference at the Treasury Department in San Juan. “In addition, the total collections figure for the month of July 2023 exceeds what was collected during the month of July of the previous year by $112.9 million, or 16.2%. These results are positive indicators for the beginning of Fiscal Year 2024.”
Parés Alicea highlighted that, when analyzing the preliminary numbers for August and September, collections for the first quarter of this fiscal year amount to $2.689.3 billion. Those revenues exceed the revenues of the previous fiscal year during this same period by $316.5 million, or 13.3%. In addition, the level of collections achieved in the quarter exceeded the estimate of the oversight board by $441.7 million or 19.7%.
“Definitely, revenues continue to be greater than expenditures and we anticipate that the government’s finances will continue to be stable with a healthy cash flow to meet the government’s obligations,” Parés Alicea said. “We continue to bring our finances up to date, developing a responsible, transparent and effective government in the management of public funds.”
The oversight board, in its fiscal plan presented on April 3, certified net income to the General Fund for fiscal year (FY) 2023-2024 of over $11.621 billion. That revenue base is comparable to the revenue components considered in recent historical periods. The Treasury chief said it is worth mentioning that for FY 2024 the income base will consider new income items that will be explained later.
In FY 2022-2023, revenues totaled nearly $12.598 billion. The projection presented by the oversight board estimates that, for the current fiscal year, collections will present a decrease of $976.2 million, or a reduction of 7.7%. For the fiscal periods from 2025 to 2028, the fiscal entity projects a negative average growth of -0.4%. This downward trend in its forecast’s rests mainly on the gross product growth projections incorporated by the oversight board.
Meanwhile, the Puerto Rico Planning Board recently presented its long-term economic projections. The growth expectations for the economy between the planning board and the oversight board vary considerably.
The main tax lines in which the oversight board estimates a lower performance than the previous fiscal year are individuals ($280 million less, or -10%), motor vehicle taxes ($159 million less, or -24%), sales & use tax (IVU by its Spanish acronym) ($87 million less, or -3%) and corporations ($47 million less, or -2%). The latter corresponds to the part of “Other” corporations, not related to the income received by entities under the new regime of Law 52-22, from foreign entities, previously under Law 154-2010.
On the other hand, the income components projected by the oversight board with a higher performance than that experienced in FY 2023 were: Law 52 corporations ($330 million more, or 98%), withholding from non-residents Law 52 ($262 million more, or 133%), and taxes on rum shipments ($39 million more, or 23%). It should be noted that the growth offered on the lines related to Law 52-2022 is largely explained by the fact that the law was implemented in February of FY 2023, which is why the income related to the regime only covers five months.
The oversight board, then, estimates a reduction compared to the FY 2023 base of $1.243 billion and an increase of $655 million, this for a net balance between periods of negative $246 million.
Overall, net revenues to the General Fund for July of FY 2024 represented $112.9 million, or 16.2%, more, compared to the same month of FY 2023. The income contribution component increased more than others, presenting a growth of $100.6 million, or 27.1% more, compared to July of the previous fiscal year. In particular, corporate income was $59.6 million, or 36.1%, higher than the figures from July of the previous year. In the foreign tax sector, the withheld contribution to non-residents experienced a growth of $39.2 million more compared to last July. Meanwhile, collections from the IVU showed an increase of $13.2 million, or 11.2% more, compared to July of the previous fiscal year. The most relevant sectors in this growth were prepared food services (9.2%) and professional services (7.4%).
The business-to-business (B2B) component for July showed a growth of 20%.
On a positive note for public health, cigarettes suffered a significant drop of -65.8%, or $11.8 million less, when compared to FY 2023 collections.
In terms of individual taxpayers, the individual income tax line for July of FY 2024 amounts to $169.3 million, which represents $4.8 million more than the projection (2.9%). When compared to July of the previous fiscal year, collections show $4.5 million, or 2.7%, more.
The Treasury chief noted that for the purposes of financing the Work Credit programs (local contribution) and the bonus for people over 65 years of age, the “Senior Bonus,” the income of individuals this year compared to FY 2023 is adjusted by $28 million more monthly. The components of the employer’s association and the withholdings from services provided experienced growth of $21.5 million and $6.1 million, respectively. Meanwhile, corporate income tax collections for July of FY 2024 totaled $224.6 million, reflecting an increase compared to the projected figure for that month of $59.3 million, or 35.8%, more. When compared to July of fiscal year 2023, collections reflected $59.6 million, or 36.1%, more. Of this growth, payments from taxpayers under Law 52 represented $57.4 million. Payments from other types of taxpayers showed a growth of 1.3%.