Monday 27 September 2021

Costa Rica’s Surprise Frontrunner Favours Eventual Tax Hike

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Luis Guillermo Solis, the academic who has never been elected to public office who emerged as the surprise leader of Costa Rica’s presidential election process vows if he wins the runoff vote to prepare the ground for eventual tax hikes seen as crucial to preserving the credit rating of Central America’s No. 2 economy.

Solis, who was near the bottom in all pre-election polls holds a narrow lead following Sunday’s election, is riding a wave of disgust over government corruption. He faces a second-round runoff vote on April 6 against ruling party candidate Johnny Araya.

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Solis, has said he will not present fiscal reforms aimed at boosting tax receipts for two years if he wins. But he says it is vital to lay the groundwork by first combating tax evasion, government waste and contraband.

“If we manage to build a credible platform against corruption, I think we could convince people it is necessary to raise some taxes with a progressive logic,” he told Reuters in an interview on Tuesday.

I am convinced that we will need fiscal reforms,” he added.

Solis, the presidential candidate for the Partido Acción Cuidadana (PAC),  won 30.95 percent support on Sunday (Feb. 2) compared to 29.59 percent for Araya, presidential candidate for the ruling Partido Liberación Nacional (PLN), with returns in from around 89% of the country’s polling centres.

The PAC's Luis Guillermo Solís (left) and PLN's Johnny Araya will face each other in a runoff vote April 6 for the presidency of Costa Rica.
The PAC’s Luis Guillermo Solís (left) and PLN’s Johnny Araya will face each other in a runoff vote April 6 for the presidency of Costa Rica.

Villalta, of the Frente Amplio, the candidate who was believed to have either won the Sunday vote or be in the runoff with Araya, placed third, obtaining only 17.14% of the vote.

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Votes from a host of smaller parties, which commanded around 22% of the tally, will also be fought over in the next round.

Costa Rica’s political constitution requires that a candidate must obtain 40% of the vote to be declared a winner. In the case, like Sunday’s vote, a runoff election is held between the two top candidates.

Araya was viewed as the frontrunner ahead of the vote, but his campaign was hurt by corruption scandals that plagued current President Laura Chinchilla’s administration.

A Solis victory in the runoff would mark another triumph for centre-left parties in Latin America, which have gained ground in much of the region in recent years.

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Solis, who worked in Costa Rica’s Foreign Ministry, surged late in the campaign by pledging to improve the country’s ailing infrastructure, overhaul the universal health care provider and stamp out corruption.

The eventual winner of Costa Rica’s election will have to tackle growing government debt that totals more than half of gross domestic product.

Solis said he would seek to boost Costa Rica’s tax take by about a percentage point a year to around 17% or 18% during an eventual four-year term, from about 13% now.

His government plan includes creating a capital gains tax.

Moody’s Investors Service, which rates Costa Rica a cut above speculative grade, revised its outlook for the country to negative from stable in September, citing fiscal concerns.

Solis said he hopes to also attract new businesses to set up shop in Costa Rica’s booming free-trade zones, which have enticed the likes of Intel Corp and Hewlett Packard.

“Far from wanting to impose taxes, we are rather looking for a way to benefit the presence of transnational companies working here,” he said, adding that he would not change contractual terms for firms already in Costa Rica.

Solis says he is confident he can win the runoff without forging political alliances, but says he will talk to political rivals. Solis and Villalta have not yet been in touch.

“We haven’t closed any doors, but for the moment the ball is in the court of the parties that are in the second round,” Villalta said at a press conference on Monday.

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