By Pedro Ardón
El Inmobiliario
SANTO DOMINGO – Magín Díaz, an industrial engineer and economist specializing in public finance and macroeconomics, highlighted the urgency of implementing a serious and structural tax reform in the Dominican Republic to address the growing fiscal challenges facing the country.
According to Díaz, the tax reform proposed by the government, which the Executive Branch was forced to withdraw from the National Congress due to public rejection, and which aimed to raise more taxes to cover expenses, does not solve the underlying problems, such as the mismatch between current spending and public investment.
“What we are seeing is a tax reform that aims to increase revenue, but at the same time plans to increase spending. This does not solve the chronic fiscal deficit that the country faces. We need a profound reform that not only increases revenue, but also controls spending and achieves a more efficient allocation of resources,” Díaz said during his appearance on the program El Despertador yesterday.
The economist warned that the Dominican State is operating with a growing fiscal deficit, which has been financed through public debt.
Magin Díaz. (EXTERNAL SOURCE).
"The government has managed to finance its deficit by issuing debt, but that strategy is not sustainable in the long term. Interest payments on the debt are eating up an ever-increasing portion of the budget, leaving fewer resources for investment in key areas such as infrastructure, education, and health," he stressed.
In his analysis, Díaz also considered that the lack of profound fiscal reforms could lead to a fiscal crisis in the near future. “The problem is not only that we are running a deficit, but that public spending has increased unsustainably. In 2024, total government spending will reach 1.46 trillion pesos, almost double what it was in 2019, but despite that, we continue to have a growing debt and an alarming rate of tax evasion,” he added.
The economist stressed that, in order to achieve sustainable economic growth and improve the quality of life of citizens, it is necessary to make tax reforms that not only increase tax collection, but also promote greater efficiency in public spending.
"The government must recognize that it cannot continue to increase public spending indiscriminately. It is urgent to improve the efficiency of spending, reduce informality, and make taxes more progressive to reduce inequality," he explained.
The expert also referred to the structural challenges that persist in the Dominican economy, such as the high level of informal employment, inefficiency in key sectors like electricity and education, and a lack of competitiveness. "The country has experienced sustained growth, but that growth has not translated into a significant improvement in competitiveness or a substantial increase in productivity," he noted.
He explained that while modernizing the tax system and combating tax evasion are necessary steps, these efforts must be accompanied by a serious fiscal pact that addresses public spending reform. "What we need is a comprehensive tax reform that focuses not only on revenue collection but also on controlling and restructuring spending. Otherwise, we will simply be postponing the fiscal crisis for the future," he concluded.
