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Honduras Tax Program: Theater of the Absurd By: Lorenzo Dee Belveal Don Carlos Roberto Flores Facusse, Presidente de la Republica, has spelled out the program with which he intends to rescue Honduras from the pit of perpetual poverty and out of its prominent position in the ranks of international beggary. Now we know why he had nothing to say prior to the voting. Had he announced his just-unveiled fiscal program on October 29, 1997, instead of April 29, 1998, he would now, still be properly addressed as Mr. Publisher, instead of Mr. President. As a working economist, and one who has been watching the political charades in many venues, over a long and active career, experience makes me a hard target for the political quick-talkers and sleight-of-hand artists. In the political realm, a journalist quickly learns to never expect truth or candor; Especially where numbers are concerned. Failure to quickly clasp this tenet to his/her breast, places the correspondent’s career in dire jeopardy. Reporters know that the Machiavellian rule is the first rule of political survival: Lie or lose! Put another way, the truth - however beguiling - is never going to be good enough to win an election. When the truth is bad, grim, threatening, or disheartening, it's best to ignore it entirely. Smile, shake hands when you must, and keep your distance from anyone who might ask a substantial question that requires an answer. Stay out of the public eye to the greatest extent possible. Sounds strange? It shouldn't. This was the grand strategy employed by Don Carlos Flores, in winning the highest office his countrymen could bestow. Compared to Candidato Flores, "The Invisible Man" was an exhibitionist. Although he won handily as a "candidate without a platform", he realizes there is no way he can expect to make it through four years, as a "President without a program." That is why, on the evening of Wednesday, April 29, 1998, Don Carlos, adorned with the blue sash of his office, and otherwise polished up like a newly minted dime, went before the cameras and microphones. His purpose was to tell his fellow-citizens what they might expect during the four years of his national leadership. In view of the continuing, pervasive and steadily mounting pressures of national poverty, Don Carlos paid most of his attention during the allotted time slot, to matters economic. This was as it should have been. Honduras is the victim of a severe and long-standing case of the "shorts" in its national accounts. Indeed, this unhappy circumstance has been a major element in the national scene for more than a hundred years. With this kind of economic experience to draw on, one might have expected El Jefe to kick off with an idea or two calculated to put some more money into the national purse. But he didn't. Starting from an economic base-line where national per-capita income hovers around US$650 a year, and more than two-thirds of the 5.5-million population live in abject poverty, it might seem that the only way to go is up. But Don Carlos acts like he thinks Honduras is as rich as he is. Indeed, his first two proposals suggested draining off a lot of money from the already cash-strapped economy, to create one fund to finance small farmers and agricultural co-ops, and another fund to buy land for restive, landless, ethnic groups. Both of these undertakings are commendable, beyond doubt, provided there is a money source available to bankroll them. In Honduras, there doesn't seem to be any such pot of gold waiting to be tapped. In a clear effort to plug into the capitalistic profit incentive, Don Carlos proposed a reduction in Corporate Income Taxes by about one-third: from the present 42%, to an even 30% immediately, and backing down another step, to 25%, a year from now. And this is not all. For taxable incomes below Lps. 200,000 (about US$15,000) the applicable rate will be a modest 15%. For the chief executive of one of the two or three poorest countries in the hemisphere, El Jefe passes out tax benefits with a very lavish hand. But this is not all of it by any means. Provided he gets his way with the Legislature, and the betting is that he will (he was President of the national legislative body until the broader political horizon beckoned) a baker's dozen other tax-reduction or tax-deletion measures are on his agenda, including things like:
Beyond all of this "forgiveness", about Lps.150,000,000 is targeted toward things like educational support programs, school computer purchases, development of sports facilities, construction of low-cost housing, and setting up credit lines for marginal agricultural producers, and small industrial fabricators. The proposed offset for all of this cutting back on taxes, is a whopping increase of the national sales-tax, from 7% to 12%. Only food and medicines will be exempt.. Another source of new revenue is contemplated in an across-the-board "tourism" tax levy of 4%, that would apply to everything from room rates to car rentals, and agency fees, tickets, etc. These collections won't do anything for the national purse, however. The plan announced calls for spending all of the tourist-tax revenue on advertising, in the hope of making Honduras a major tourism "destination." There is a case to be made in favor of reducing tax burdens to give business and industry some breathing space. But for the "tax less and collect more" concept to work, there has to be a large and vibrant economy to maximize its effect. This does not describe Honduras. Don Carlos appears to be structuring his tax program to fit an industrialized macro-society. The most reliable figures I can find on short notice indicates that 68% of all working Hondurans are in agriculture, 20% are in the service sector, and 9% are in manufacturing. The tax program El Presidente put forth sounded like dead seriousness. However, it is so palpably out of synch with the Honduras that really exists, it comes off as utterly unreal, if not a sick political joke. This reporter finds it hard to believe that anyone with even the most rudimentary understanding of Honduras demography and economics realities will find enough substance in the Flores tax program to be able to take it seriously - even on the most charitable reading. Does anyone really believe that the 74% of all Hondurans who live in grinding poverty are going to further reduce their subsistence standard of living, in order to pay taxes? And if they don't, what does Don Carlos propose doing about it? Confiscate their property? They don't have anything valuable for the government to grab. Put them in jail? Honduras jails are already so jammed-packed full that the inmates are tearing down the walls in their desperation, to get room to sleep - on the floors. When Don Carlos devoted two-thirds of his speech outlining his tax-cutting plans, and then added - almost as a footnote - his intention to raise the national sales -tax from 7%, to 12%, his tax program stood revealed for what it is: a functional farce. Theater of the absurd. There is no way in the real world of dollars and cents, and accounting mathematics, that the delusionary Flores tax-program can work - on paper or otherwise. Anyone who doubt this should keep close watch in the press, for endorsement by creditable economists - anywhere - inside Honduras, or out of it. It won't happen. Understanding this, a reasonable person must be persuaded that the Flores tax proposal isn't being put forward as an operational fiscal blueprint, but as a "talking paper" upon which to, hopefully, arrange a new round of international borrowings and outright donations. The model for the Flores tax program might well have come from the political vision of a Sri Lankan, Ranasinghe Premadasa. This gentleman was elected President of the tiny "tea island" in 1989, following a campaign that was pure fabrication from its first day. Candidate Premedasa based his entire political case on a hollow promise to "end poverty in Sri Lanka". He proposed doing this by guaranteeing every head of a Sri Lankan household, employed or not, 2,500 rupees per month. This was the equivalent of about fifty U. S. dollars, and a bonanza in poverty-stricken Sri Lanka at the time. The Premadasa program, called "Janasavaya" (read: "prosperity") was a great hit in the largely destitute country. Why wouldn't it be? And to drive the point home, Premadasa staged a carefully orchestrated public demonstration at which he personally distributed the first fifteen "Janasavaya" payments to heads of properly impoverished - hence thoroughly deserving - households. The press ate it up! Newspapers and the electronic media were full of it. The event was nothing short of astounding. Seeing is believing! There was still the matter of explaining how the program was to be financed. Premadasa declared that he was going to personally get the money. He said he would go to the rich nations, the U. S. A., Germany, Japan, Canada, etc., and get them to provide the "start-up" funds to get the national give-away launched. Then, with all of the "new money" in circulation, he promised, new homes would be built, people would buy automobiles, televisions, clothes, boats, new businesses would be launched, children would go to school - instead of having to work in the tea plantations. With all of this new economic activity, Candidate Premadasa confidently declared, the country would levy taxes on the resulting profits and - with the collections - repay the rich nations for their "pump-priming" loans. Result: No more poverty. The economic equivalent of "perpetual motion". Let the good times roll! He won the election in a walk! It seemed that every voter in the country liked the idea of free money. They overwhelmingly endorsed the "Janasavaya" plan for instant prosperity. Then President Premadasa, true to his promise, went calling on the heads of the "rich nations." He carefully explained his poverty-eradication plan for Sri Lanka, and warmly invited their participation, to the extent of many billions of dollars each! To the great surprise of President Premadasa (he said later) the "rich nations" did not share his enthusiasm for ending poverty in Sri Lanka. Or if they did, their enthusiasm level fell well short of prompting them to go into their national pockets for billions of dollars to bankroll the scheme. So, Premadasa returned home, having done his best - but failed, as he explained it. The goofy "Janasavaya" program was never officially mentioned again. But the idea had succeeded in getting Ranasinghe Premadasa elected President of Sri Lanka. That was the whole idea from its inception. There may be an economic parallel between "Janasavaya", and the pie-in-the-sky tax program Don Carlos Roberto Flores sent up a few days ago. The Flores tax plan will work, to the extent - and for just as long - as foreign donor nations are willing to bankroll it. That's it! Everything depends on El Presidente's skills at hypnosis in high places, and consummate artistry at international sleight-of-hand. Unless he can turn his vision of a Honduras renaissance into many millions - billions? - in "soft" loans and "grants in aid", from the "rich nations", the Flores tax program doesn't have the survival chances of that proverbial "snowball in hell". I doubt this gloomy prognosis will come as a surprise to anyone who has a pencil, a piece of paper, and modest understanding of simple arithmetic. In a nutshell, the numbers don't square with Honduras realities. In economics, just saying something doesn't make it happen. Even if the Presidente says it. Perhaps a visit with Ranasinghe Premadasa, former president of Sri Lanka, would be helpful for Don Carlos. By understanding where the author of "Janasavaya" thinks his sudden-solvency vision went awry, the author of the "Flores Fantastic Fast-Fix" tax plan could maybe improve the odds for survival of his brain-child. Unfortunately, however, this interview can not be arranged. As set forth above, Premadasa easily won the presidency of the tiny island, formerly known as Ceylon. He seemed quite happy with this outcome at the polls. But his constituency was deeply disappointed at the complete failure of the free-money poverty-elimination program they had been promised. These feelings persisted. Some things are especially hard to forget. At a large public assembly held May 1, 1993, President Premadasa was the principal speaker. After his speech, as the festivities were winding down, a lot of people wanted to shake hands with their principal political celebrity. One of those in the handshaking line was a young lady with a bouquet of flowers to be presented to President Premadasa. As the line shortened, and it came her turn, rather than hand the bouquet to the president, she flipped a triggering device in the flower arrangement. The resulting explosion killed the President, the flower girl, and a couple dozen others who were standing too close to the blast. So an interview between former-President Premadasa and Presidente Don Carlos Roberto Flores is out of the question. Depending on his skills in the area of hypnotism and economic magic, however, maybe he doesn't need advice. In any case, one thing is sure: If Don Carlos does bring off this tax-trick of his, it's going to be the greatest performance since the guy went over Niagara Falls in a barrel. For an encore, and in the name of pure political bi-partisanship, he should work out a joint-appearance deal with his erstwhile opponent, Nora Melgar. The only thing that can possibly follow the destitution-defying Flores tax trick, would be that sure-fire crowd-pleaser of "sawing the lady in half". If the Flores tax scheme works, he should publicly saw Nora in half for his Grande finale. His place in the annals of political history will be assured. If the Flores tax scheme doesn’t work, then Nora should get to use the saw on Carlos. After all, fair is fair. ========E N D ======== Copyright © 1998 Lorenzo Dee Belveal
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