QBLOG – It probably comes as no surprise to any reader, as you would have to be blind not to notice, that there are a great number of new cars, particularly on the streets of San Jose, but throughout the Country in general.

Everyone seems to be driving a late model vehicle these days. I asked myself why this is the case and I believe that I have the answer.

Banks and financial institutions in general have been encouraged to make credit easily obtainable to finance new car purchases in Costa Rica. The Government has been quietly encouraging such purchases, as new car import duties are equal to sixty percent of the value of the vehicle, which gets paid in full to the Government on the registration of the vehicle in the National Registry.

The recent auto show held in the Pedrigal facility in Belen, offered many purchase financing incentives to stimulate new car sales. Essentially, I would imagine that a good portion of the tax revenue currently generated in Costa Rica comes from new car sales and the import duties paid to the Tax Department.

San Jose is, of course, the best place to promote such new car buying activity, as it is where the greatest concentration of Public Sector workers live and work. This “nouveau riche” crowd, flush with gigantic salaries, benefits, and pension packages (salary increases of up to 116% over the past five years), is exactly the crowd to tap into, to claw-back some of this capital into Government coffers, through payment of these new car import duties.

Hopefully, what can only be characterized as a wily financial incentive program perpetrated on its own workers by the Government, can be expanded to include clawing-back these excesses paid to the Public Sector workers, in other manners as well. This will allow the government to keep paying salaries and benefits in accordance with the provisions of existing Collective Agreements, yet receiving back a substantial portion of these payments made in promoting such tax “claw-back” schemes. This, in-fact, may be the solution to correcting the entire problem of imbalance which currently exists in Costa Rica, between the Public and Private Sector wage and benefit rates and the Government’s ability to finance the National Debt.

I would also hope that the financing for these new car purchases is largely in colones and not in dollars. As these Public Sector workers earn their salaries and benefits in colones, any negative adjustment down in the value of the colon as against the dollar, could put them in a precarious position to continue with the loan payments.

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