El Salvador’s Right and Media Reject Tax Reforms

News

A modest fiscal reform package is meeting staunch opposition from right-wing parties in El Salvador’s Legislative Assembly, prompting President Salvador Sánchez Cerén to engage in negotiations with the country’s powerful economic elite and the right-wing Nationalist Republican Alliance (ARENA) party in an effort to advance the measures, crucial for financing important social programs.

Income and sales tax financed 86% of state expenditures in 2013, but currently the country’s most impoverished sectors pay some 30% of their income in taxes, while the wealthiest contribute just 11% of their income. In its last days, the outgoing Funes administration introduced the reform package, which aims to shift more of the tax burden onto El Salvador’s most opulent sector. The proposal included a tax on financial transactions over $750, with exemptions for remittances sent from families living abroad, cash withdrawals, credit card payments, social security, salary or loan payments; a tax on non-productive properties valued at over $350,000; and the elimination of the exemption of newspaper owners from income tax payment.

Unsurprisingly, El Salvador’s major newspapers, owned by members of the country’s historic oligarchy and known for their explicitly ultra-conservative bias, have been particularly vehement in their rejection of the proposed reforms, alleging increased production costs and press censorship.

Thus far, the right-wing parties have remained a united front against the proposed reforms, likely eager to protect the donors who will finance their 2015 legislative and municipal campaigns. Last week, however, several right-wing parties broke ranks from ARENA, joining the leftist Farabundo Martí National Liberation Front (FMLN) party to approve the issuing of over $1 million in government bonds to finance urgent state expenditures. The bonds vote evidences possibilities for the brokering of a deal without ARENA, but the recalcitrance of the nation’s elite and unity in the face of any threat to their historic privileges has proven a formidable obstacle to the wealth redistribution measures that El Salvador so desperately needs.

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