SANTA DOMINGO.- Economist Magín Díaz warned that covering the permanent Dominican fiscal deficit through debt is bound to be unsustainable, and to avoid a serious macroeconomic crisis in the next government, the country must focus on agreeing on the appropriate path to solving it.
Díaz, former head of the General Directorate of Internal Taxes, highlighted that, after several decades of government deficit and Central Bank covered by loans, the public debt is very high and increases by about 6 billion dollars per year.
The fiscal deficit explained reaches 3% of the GDP (gross domestic product), equal to 200 billion pesos a year, since State spending is 17 to 18% of the GDP, against a collection level of barely 14 and 15%.
He maintained that the relevant debate for the country is not whether the tax burden is low or high but how to balance government spending with revenue to ensure the health of the macroeconomy.
“The State, as it is, has a size of approximately 18% of GDP, if what we collect is 15%, there is a problem, the debt will continue to increase. There is a permanent deficit of more than 20 years, it is not characteristic of a political party, of a president. The relevant issue is that what the government collects does not give, so you have to get into debt and that cannot continue permanently,” he said.
He indicated that if the country makes the fiscal pact, as ordered by Law 1-12 of the National Development Strategy, it must “define the size of the State that we want.”
The professional and academic analyzed the fiscal problem and other throbbing economic issues during an extensive conversation with the journalist Rafael Núñez in the Reseñas program, which is broadcast on Saturdays on ENtelevisión, channel 31, at 9:00 p.m.
The most difficult reform in history
After emphasizing that with the current size of the State, the government requires more revenue, he pointed out that “at some point,” a tax reform must be implemented, which he anticipated as “the most difficult in our history.”
“It will be a complex reform, but the worst scenario is that we do not carry out a reform and a macroeconomic crisis comes,” he insisted.
On criticizing the government
The expert stated that the government cannot be criticized for borrowing since “a deficit is financed with public or private debt.”
He said that in 2021 the entire nation “applauded” that President Luis Abinader gave up on a tax increase.
“The government tried in 2021; it circulated its draft tax proposal, which was complex and included an increase in the rates of most taxes. Then, everyone applauded like a seal when the president (Abinader) said, “There will be no reform here,” he narrated.