San Juan, PR – November 15, 2023 – The Financial Oversight and Management Board for Puerto Rico today issued the following statement:
The Oversight Board believes that tax reform is essential for Puerto Rico’s return to sustainable economic growth. Effective tax reform must be comprehensive, holistic, and for the long-term.
The Oversight Board analyzed the Substitute to House Bill 1839 that the Legislative Assembly passed last night. The bill, one of the largest tax cuts in Puerto Rico’s recent history coming only a year after emerging from bankruptcy, would reduce Government revenues by about $750 million this fiscal year and by almost $3 billion over five years.
The bill threatens the Government’s fiscal stability. The substantial losses in revenue would push the Government’s budget back into deficit, erasing the progress made in recent years to stabilize Puerto Rico’s finances. It is significantly inconsistent with the Fiscal Plan for Puerto Rico, the current fiscal year budget, and PROMESA.
The Oversight Board urges the Legislature not to send the bill to the Governor for signature, and for the Governor not to sign the bill into law. Instead, we encourage both branches of the government to meet with the Oversight Board to work together on a budget that adequately funds services, and on a tax reform plan that is affordable and leads to long term economic growth for a Puerto Rico that is recovering.
In prior years, the Oversight Board supported the Government’s over $500 million-a-year expansion of the appropriate and sensible Earned Income Tax Credit that is matched by the Federal Government, benefited low-income households, and incentivized more residents to rejoin the formal economy. We continue to be open to discuss fair and effective tax proposals.
The tax bill the Legislature rushed through voting last night, however, was not sufficiently evaluated for its cost or economic impact. Cutting taxes should be based on data, not politics, and with a thorough discussion and evaluation of the impact on government finances and the economy overall.
Fiscal irresponsibility resulted in painful adjustments to government spending. We all must work together to recover and prevent Puerto Rico from falling back into the deficit spending that led to its bankruptcy and to the creation of the Oversight Board.
Any potential tax reform must be fiscally responsible, meaning it cannot lose revenues that are necessary to fund essential services. We must focus on sustainable economic growth and fiscal responsibility so the people of Puerto Rico benefit from better healthcare, the children of Puerto Rico benefit from better education, and residents won’t move away to find opportunity and prosperity elsewhere.
The Oversight Board will continue to work with the Governor and the Legislature towards a truly comprehensive tax reform that can contribute to Puerto Rico’s competitiveness as a critical part of its economic development.