Puerto Rico wound up with a $703 million deficit in 2015, a fiscal year it had budgeted to be at least superficially balanced, according to Puerto Rico Secretary of the Treasury Juan Zaragoza G-mez.
The deficit amounted to 7.3% of fiscal 2015 General Fund's spending of $9.664 billion. If this holds in the certified numbers reported next year, it would be an improvement from the 11.9% ($1.1 billion) deficit of the fiscal year 2014 General Fund.
The fiscal 2014 General Fund deficit was initially reported at $783 million, and it is possible that the current estimate of the deficit will change as well.
Since this past year's General Fund included $270 million in capitalized interest from Puerto Rico's March 2014 general obligation bond, the budget was not structurally balanced.
The fiscal year 2015 deficit came in at $703 million because revenues were $604 million below projections and expenditures were $99 million higher.
Over the fiscal year, which ended June 30, the biggest shortfalls came in corporate taxes ($349 million shortfall), sales and use taxes ($109 million), motor vehicles taxes ($81 million), and individual income taxes ($61 million).
The shortfall in corporate taxes came as the government ended a gross receipts ("patente nacional") tax in December, anticipating that it would pass a major tax reform measure in the following weeks. The government expected the tax reform would more than replace the loss of revenue from the patente nacional. However, some members of the governor's party in the legislature refused to go along with the tax reform. The ultimate tax reform was different from the governor's idea and didn't go into effect until the current fiscal year.
The government's reduction in the tax rate on cars in the middle of the fiscal year also contributed to the shortfall. According to Zaragoza G-mez other factors that contributed to missing the budget numbers were economic weakness and the failure of U.S. Congress to pass a tax-extender increasing the reimbursement of the excise tax on off-shore rum shipments.
The biggest exceedances came in foreign corporation (Act 154) taxes ($53 million exceedance) and property taxes ($21 million).
Zaragoza G-mez said the government has taken measures to prevent the shortfall from continuing in the current fiscal year. It has increased consumption taxes by 4.5 percentage points. Further, "changes will be introduced to the tax administration in order to strengthen tax compliance and fiscal oversight," Zaragoza G-mez said.
