Puerto Rico governor revives value-added tax proposal

Puerto Rico's governor is reviving his push for a value-added tax despite previous opposition from legislators as concerns grow about the U.S. territory's economic crisis and the government's ability to fix it.

Gov. Alejandro Garcia Padilla told reporters Tuesday that legislators from his party are debating a 13.25 percent value-added tax as one option. If that proposal is approved, it would be accompanied by $300 million in budget cuts, he said. But if a lower tax is approved, cuts will increase to $500 million, said Garcia.

"We have reached the point where we have to solve this problem," he said. "Those who are worried about the crisis have reason to be concerned."

Garcia, whose party controls the legislature, said he will meet with additional lawmakers and government officials Thursday to craft a final bill that he believes will be approved. He said that if a value-added tax is approved, it would be implemented in stages.

"I am not offering magical solutions," he said. "This is going to require sacrifices from the people."

Garcia also said officials waited too long to issue nearly $2.9 billion in bonds as planned earlier to help generate additional revenue, and that such action now is dependent on efforts to present a balanced budget.

Legislators previously rejected Garcia's call for a 16 percent value-added tax, and the island's House of Representatives later voted against an amended version that called for a 14 percent value-added tax following weeks of negotiations.

Critics have said the island's economy cannot handle a new tax despite Garcia warning it is needed to stave off a possible government shutdown. The U.S. territory of 3.5 million people is in its eighth year of recession and struggling with $72 billion in public debt, along with an 11.8 percent unemployment rate, higher than in any U.S. state.

"The government keeps making the same grave mistake with a fiscal policy that is based more on taxes than cost reduction," Puerto Rican economist Gustavo Velez said in a phone interview.

Puerto Rico's government faces a $1.5 billion shortfall as Garcia's administration prepares to submit a proposed budget for the upcoming fiscal year. Senate President Eduardo Bhatia said the government already has taken difficult decisions in the past two years to help boost the economy, including overhauling public pension systems and seeking protection from a law that would allow for public agencies to restructure their debt or declare bankruptcy.

"We now find that is not enough," he said. "We have become aware of the magnitude of the problem."

By DANICA COTO

Puerto Rico governor revives value-added tax proposal