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Puerto Rico Governor Pushes Tax Plan, Says Shutdown Still Possible

Tuesday, 12 May 2015 07:53 PM

May 12 (Reuters) - Puerto Rico's governor on Tuesday sought to rally his fractious party behind a revised tax plan that he says is key to ending the U.S. territory's fiscal crisis and avoiding a government shutdown on July 1.

Governor Alejandro Garcia Padilla said that without access to short-term financing during the first quarter of the next fiscal year, a government shutdown is still possible. He urged approval of tax reform to help avoid such a scenario.

"This is the moment to solve this. We don't want government spending cuts of $1.5 billion. We need to increase government revenue," the governor said.

The original plan to overhaul the tax system by introducing a 16 percent value added tax (VAT) was defeated last month when six members of the governor's Popular Democratic Party (PDP) refused to back it.

In response, top finance officials said the government may have to shut down at the start of the fiscal year on July 1 and $1.5 billion would need to be cut from next year's budget.

Puerto Rico has a debt load of around $72 billion. The economy has been in or near recession for nine years and the rate of people leaving the island has jumped in recent years.

Hedge fund investors that hold $4.5 billion of the government's debt are trying to make tax reform a precondition of a new financing deal of up to $2.95 billion. The government badly needs that money to finance its operations.

Puerto Rico also uses short-term financing known as tax-revenue anticipation notes (TRANs), which officials have said will not be available in the first quarter of the fiscal year.

Padilla has presented to legislative leaders a new plan for a 13.25 percent VAT that would provide the government with the necessary tax revenue to only reduce by $300 million proposed spending cuts for the next fiscal year.

Padilla's renewed warnings of a shutdown come ahead of further meetings with lawmakers scheduled for Thursday when Padilla said a "consensus plan" will be delivered.

Broad-based support for the measure still seems some way off, however. Senate President Eduardo Bhatia told reporters earlier Tuesday that currently "there is no consensus" for implementing a VAT tax in Puerto Rico at the present time.

Besides the revised VAT, reintroducing a tax on imports at ports and a hiking a sales tax are two other options being evaluated by the administration, the governor said.

(Reporting by a contributor in San Juan; Editing by Lisa Shumaker)

© 2017 Thomson/Reuters. All rights reserved.

   
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