Government

Gov’t incentives to farmers, filmmakers, hospitals up for elimination

Economic Development and Commerce Secretary Manuel Laboy (Credit: Dennis A. Jones)

By Eliván Martínez Mercado
Center for Investigative Journalism

Gov. Ricardo Rosselló’s administration has put together a list of incentives granted to different sectors and companies that do not offer a return on investment to the public coffers, and will recommend their elimination, the Center for Investigative Journalism reported.

These include subsidies to agriculture and the dairy industry, subsidies to the film industry and the so-called Green Energy Fund, which promotes private renewable projects, according to a study by the Department of Economic Development and Commerce that the CPI (as the Center is known in Spanish) reviewed.

The government agency carried out the study dated March 2018 to know the effectiveness of the fiscal expenses as part of the bill for a new Incentives Code that is being prepared by the Economic Development and Commerce Secretary, Manuel Laboy.

The study has yet to be made public, as Economic Development and Commerce will reportedly present it along with the draft bill to modify the incentives, Laboy said, wihtout disclosing a date for that to happen.

Agriculture incentives are among the highest money-losing propositions for the government, possibly including those granted to local farmers and global biotechnology companies such as Monsanto, Bayer Crop Science and Pioneer Hi Breed.

Potentially on the chopping block are incentives granted under Law 225, which certifies companies and individuals as “bona fide” farmers, exempting them from property taxes, municipal patents, income and excise taxes, among other benefits.

Also up for potential elimination are benefits granted under Law 52 to generate job opportunities and Law 168, granting tax breaks to hospitals. The incentives under both mandates have cost the government $146 million a year, and have generated $124 million in losses for the public coffers, according to the report the CPI reviewed.

“I can’t tell you that it’s going to be eliminated. I can tell you that for the first time we’re going to have this discussion with data, identifying which are the best practices, using a scientific method, with rational information that we can use to make public policy,” Laboy told the CPI.

Code will be a ‘guide’
“The Incentives Code will recommend that Legislative Assembly — based on this study — keep incentives that generate positive return on investment, and consider reducing those that are negative. The Code is going to be a guide,” he said.

Another group of incentives that are negative for the government’s bottom line are exemptions granted under Law 72 to the dairy industry, Law 27 used by Hollywood production houses, Law 171, which creates the Film Industry Development Program, and Law 212 for the rehabilitation of urban centers. The government has invested $24.1 million annually in them, resulting in a net loss of $17.2 million, the report showed.

The Milk Price Control Program, which subsidizes production costs of the sector, sits at a midpoint between high and medium cost incentives with negative results, according to the government agency.

Economic Development analyzed more than 50 incentives, some of which dated to before the 70s. Together, they represent $600 million in costs to the public coffers annually, Laboy said.

The new Incentives Code will allow the Rosselló administration to know where to cut $250 million in subsidies to offset the reduction in individual and corporate tax rates.

“For the first time there is a clear criterion of how the incentives will be granted and why. This we can see as a step forward. Whether the process is transparent or not, we are about to see it,” said Deepak Lamba-Nieves, director of research at the Center for a New Economy, a group that analyzes economic policies.

The planner explained to the CPI that these fiscal expenses are not necessarily bad, but that they can improve the economy if they are delivered with criteria for the sectors that really need it. In a meeting with Economic Development, the CNE made suggestions to the agency on the best practices to account for and administer these subsidies.

The cost-benefit method that was used to study each incentive considers direct, indirect and induced jobs, wages paid, taxes that corporations pay into the coffers and the value of exports.

Positive yield for the government
Among the fiscal measures that offer a favorable return on investment are the group of high-cost incentives that represent more than $583.7 million annually, which yielded a net profit of $3.3 billion.

The group includes incentives to the tourism sector, Law 135 that grants tax incentives to manufacturing companies, the Economic Development Fund and the Economic Incentives Fund, as well as Law 178 that grants incentives to the rum industry.

Economic Development and Commerce also identified other subsidies classified as “average expenditures” by the government of $20.7 million per year, which yielded a total net profit of $547.3 million, and therefore are among the candidates to stay.

Among these are Law 113 that promotes the cruise industry, Law 73 for incentives to manufacturing, and Law 20 for the export of services.

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