Wednesday, 06 February 2019 15:55

Icefi's analysis reveals little financial viability of electoral promises

Written by Dinero

The Central American Institute of Fiscal Studies (Icefi) analyzed the government plans of the parties in contention, facing the presidential elections on February 3 in El Salvador, in four fundamental aspects: sustainable economic growth, construction of equality, effectiveness of the State, and fiscal policy.

Icefi has analyzed with this evaluation, the financial viability of the proposals made during the electoral campaign. The Institute showed concern about the weakness in the fiscal proposals of the parties in contention, which anticipates the financial infeasibility of the electoral promises.

"This weakness in the fiscal proposal makes it impossible to make visible to the public the response that the parties will give to the fragile salvadoran public finances, and makes the electoral offerings lose legitimacy and credibility”, the institute assures.

When reviewing the proposals to promote sustainable economic growth, Arena, Gana and Vamos parties opt for public-private partnerships, while the FMLN for the promotion of development poles, including the Special Economic Zones, a proposal that also Vamos shares.

Arena proposes the creation of investment funds for innovation, as well as the reduction of procedures; Its goal is to generate 300,000 jobs in the next five years.

The FMLN also aims to boost the MYPES and its goal is to create 385,000 jobs. While Vamos proposes to bring public investment to 3.5% of GDP, and its goal of creating jobs is 475,000. Gana, although it does not have a job target, expects the economy to grow at 4% and opts to strengthen the role of public development banking.

At the Institute's discretion, since it does not intend to change the economic model, and taking into account its structural limitations (technological backwardness, and low economic complexity, poverty, insecurity, among others), the proposed goals for employment generation, and economic growth are unrealistic.

For the construction of equality, Gana proposes the universality of health coverage, taking the budget of this portfolio to 5% of GDP. As for education, it raises 20,000 scholarships to study abroad. Arena, on the university studies, bets for the granting of scholarships so that the beneficiaries can study in any accredited university in the country; in relation to health, it seeks to expand the hospital network.

Vamos opts for technical careers, and a form of training provided by companies; in health, proposes the construction of two Hospitals of Attention for Infants. The FMLN proposes free education from initial education to university; In health, the goal is the construction of 50 health establishments of the first level of care and the creation of 75 new Community Health Community Teams (ECOS).

All the parties prioritize the increase of initial education coverage; with the exception of the FMLN, the rest agrees to do so with the support of the private sector. "The Icefi regrets that the parties do not establish goals, costs or sources of financing, which makes it impossible to determine the viability of any attempt to close the current gaps in the provision of public goods and services”,  the statement released on Tuesday says.

On the effective State, the FMLN proposes a national Transparency System and the creation of a Unit against corruption, within the police. Vamos offers contracting processes; transparency in all budget items; penalties to political parties that receive illicit financing, the non-prescription of corruption offenses, and the review of the jurisdiction for public officials.

Arena is committed to regulate and transparent public funds executed by NGOs, promote the transparency of autonomous institutions, and eliminate nepotism. Gana offers the creation of an International Commission Against Impunity in El Salvador (Cicies), which would be gradually implemented as of the third quarter of 2019; to this proposal is added the appointment of an Anti-Corruption Commissioner, which will come from the opposition. All parties agree on the elimination of the secret funds, which was declared unconstitutional since 2010. At the Icefi's discretion, although the proposals are adequate, they are insufficient.

As for the proposals to solve the fragility of public finances, according to the analysis of Icefi Arena makes a proposal focused mainly on public spending through measures that would allow efficiency and savings, the elimination of the "secret funds" and the implementation of the budget by results, respects to the revenue, it only proposes to modernize the tax administration.

Vamos also focus on public spending, when proposing the review of subsidy schemes, elimination of superfluous expenses, promoting joint purchases, and reverse auctions; About the income, it proposes the adoption of a single tax, and the revision of fiscal incentives, although it offers not to use public debt, and bring the fiscal deficit to zero.

The FMLN is betting on increasing financial resources by fighting evasión, and restructuring the debt; also outlines a reform to the pension system, so that there is a public pension administrator that competes with private administrators.

According to Icefi, Gana presents a more ambitious proposal, which includes the application of the property tax, and a levy on idle agricultural land; implementation of the tax on cash flows of companies; establishment of world income for natural persons; Differentiated VAT, higher for luxury goods, and less or exempt for basic basket and medicines; In addition, for the fight against evasion it proposes to implement the electronic invoice, the creation of the Fiscal Intelligence Unit, and the registration of the informal sector. It also proposes seeking a Fiscal Pact with the participation of civil society, and inserts the link between fiscal policy, and human rights.

However, the lack of technical support on the costs of all the proposals, and the income that would be obtained with the proposed measures, and taking into account the critical fiscal situation, for the Icefi, the government plans have the risk of being unviable, from the financial perspective.