Deficit budget aims to start gradual process of economic recovery

30th January 2023

Cuba’s Minister of Finance and Prices, Meisi Bolaños, has said that the most significant challenge facing Cuba this year will be delivering economic growth while continuing to deliver the country’s social provision and system of subsidies.

Speaking with other ministers about the 2023 budget on the flagship television and radio programme, Mesa Redonda, she emphasised that the planned deficit of CUP68.1bn (US$2.84bn) will require “proper management” if a  gradual reduction in the country’s fiscal deficit and the maintenance of Cuba’s principles of equity and social justice are to be achieved.

Bolaños made clear that achieving further reductions in the fiscal deficit will depend on “the future capacity of the nation to amortise the debt, based on income and the demand for financing”.

Speaking about  the fiscal deficit proposed for 2023 she said that what had been agreed “is not optimal.”

Bolaños told viewers that the proposed budget involves “a decrease of just over CUP7bn” from 2022 spending, with tax revenue this year being CUP150bn (US$6.25bn), a 31.7% growth, and non-tax revenue CUP134bn (US$5.58bn) a 17% increase over 2022, which together will finance 80% of total government expenditure.

In her remarks she noted that among the main challenges will be the capture of more income for the budget based on diversifying and increasing sources of income, boosting more efficient production, and the better control of budgetary spending.

Bolaños sought to assure Cubans that “ basic social services”  and attention to the vulnerable will remain financing priorities, and that the principle of equity and social justice will be maintained  “without applying shock therapy, without resorting to layoffs” in the state sector.

Tax rates and sources to be reviewed

Speaking later in the same broadcast, Vladimir Regueiro, the First Deputy Minister of the MFP, explained  that 53% of income will be derived from taxes, “once again recovering this space as a fundamental source of budgetary income.”

In his remarks he made clear, however, that capturing  more revenue was the key to the state budget and that there will be a review of tax bases and tax rates, “in accordance with adjustments established in the country’s existing Tax Law.”

“If income does not grow”, Regueiro said, it would not be possible to deliver the country’s  macroeconomic stabilisation programme and meet the costs of planned socioeconomic development.

He reiterated that there will be “more systematicity and rigor” in the collection of taxes in 2023  as a consequence of there being more efficient mechanisms to control of payment of the taxes  and greater awareness among economic actors.

Regueiro stressed that in introducing new taxes the objective was “not about collecting more at all costs.” Despite the income  being so necessary, it cannot, he noted have a confiscation effect on the wealth that is generated. Rather, he said, the intention is  that  “all economic actors to grow and interact.”

Other new measures and incentives

Other points that emerged during the round table  were:

  • Cuba will spend 72% of its budget or CUP251bn (US$10.5bn) on social security payments, on increases in the cost of raw materials to produce medicines and food,  and on social assistance to the most vulnerable. 
  • Subsidies to the business sector will be made to maintain the pricing of electricity, liquefied gas, and  water provided for household use.
  • Budgetary support will be used to encourage agricultural production in sectors including coffee and sugarcane, as well as for investment in the construction of new state housing, and improvements to the water supply.
  • There will be a group of temporary fiscal incentives for all actors, state and non-state, who are involved in strategic sectors of the economy including agriculture,  and in relation to the profits of high-tech companies and those involved in developing computer apps and IT services.
  • Technology Parks will be exempt from a tax on their profits for a period of five years and from import tariffs.
  • Changes will be made to the tax on profits on projects related to renewable energy sources.
  • New tax measures will see “those who have more income contribute more”.
  • A  general tax regime will be created for all self-employed workers “with a progressive scale” of taxation.
  • There will be a new requirement that entities in the state sector make an additional 10% contribution to the budget, excepting those that are price controlled

Other measures announced included changes to the rates of taxation on bonuses for those working in foreign entities; recognition of costs of acquiring freely convertible currency to finance the purchase of inputs, products, and raw materials by recognising different exchange rates; and the application of the sales and services tax to all MSMEs on the basis that “the objective of promoting the growth, transformation and recognition of these economic actors has been achieved.”

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