Ecuador accused of boosting taxes to cover costs of earthquake damage.

AutorSaavedra, Luis Angel

Ecuador has a pro-forma 2016 budget of approximately US$25 billion and a fiscal shortfall of some $US8 billion, caused mainly by a dependence on oil exports that have suffered falling prices in the last two years (NotiSur, March 20, 2015). Now, the government has decided to deal with the economic crisis by creating new and unexpected taxes, arguing that more funds are needed to face the damage caused by the April 16 earthquake on its northern coast.

Since the beginning of the year, faced with criticism from political opponents, the government has defended its 2016 budget, arguing that most allocations were for social investments in education, health, housing, and similar areas--items not considered public spending and therefore not to be reduced. As a show of sensitivity, the government said it would review some budget items that are considered expenditures, such as travel and per diem expenses of high-level officials, the expenditures of some government ministries, and non-urgent public works. It did not touch the publicity budget.

The right-wing opposition insists government spending is too high, and includes in this assessment the salaries of teachers, doctors, and other professionals working in fields related to social investment.

Whether things are considered expenses or investments, the debate became increasingly tense when the government announced a hike on taxes on cigarettes, carbonated beverages, alcoholic beverages, and sweetened products, saying the move was intended to protect public health, since the tax increase would discourage consumption of those products. The opposition saw these new taxes as an attempt to bridge the fiscal gap, rejecting the government's reasoning, especially since the tax increase came along with the decision to authorize bars and night clubs to remain open two hours longer on weekdays and to open on Sundays. These hours had been restricted, according to the government, to protect the financial well-being of Ecuadoran families.

The National Assembly was considering the taxes when an earthquake struck Manabi province and the southern part of Esmeraldas province on April 16, resulting in 659 deaths, 40 missing people and more than 16,600 injured. According to official information, 29,067 people are staying in temporary shelters and 6,998 buildings (houses, hotels and schools) have been destroyed.

President Rafael Correa initially estimated economic losses from the catastrophe between US $3 and US$5...

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