Chavez faced hard options on the way to eliminate financial transactions tax; business leaders may want more

Caracas Daily Journal (Jeremy Morgan): President Hugo Chavez' decision to put an end to the tax on financial transactions (ITF) is estimated to oblige the treasury to find at least Bs.F.8 billion to replace revenues that would otherwise have come from the much-disliked levy this year. ITF produced Bs.F.5.6 billion in the first five months, so the estimate may be on the conservative side. According to an economist who works in the state sector and prefers to remain nameless, the cost to the coffers could reach above Bs.F.10 billion.

Chavez promised business leaders at last Wednesday's meeting there would be no new taxes on business this year. The same economist says Chavez could yet regret that much as did his nemesis, George W. Bush, for "read my lips."

In the meantime, people are wondering where the new revenue is going to come from, and from whom. The easy thing, it's argued, would be to raise value added tax (IVA), but there are two problems with that. One is that Chavez wants to keep on lowering IVA, and eventually eliminate it, not least because he deems it a socially unfair tax that hits the poor hardest. And, inevitably, raising IVA would most likely boost inflation.

Chavez is in a cleft stick as far as the IVA option is concerned. Much the same could be said for why he brought himself to getting rid of ITF. It was, after all, a tax that didn't directly hurt his powerbase among the less well off, and bashing business is part and parcel of populist politics anywhere.

Business leaders claimed the 1.5 percent levy was inflationary on two counts. First, there was the simple knock-on cost, repeatedly passed on through the supply chain. Second, it was inordinately complicated and costly to administer. More fingers stabbing at calculators and those fingers had to be paid.

The former director of the Venezuelan Central Bank (BCV), Domingo Maza Zavala, may have put his own finger on the President's dilemma. He suggested that Chavez' motive for biting the bullet was a combination any elected government would dread: rising inflation, a grumbling public, and all in an election year.

If the President was hoping he'd win over business leaders with ITF and impending changes in currency controls, he may have hoped a step too far. Having gotten over their happy surprise at those two measures, they appeared to step back from their initial welcome of the package as a whole. The Federation of Chambers of Commerce and Industry, Fedecamaras, said the measures were of a temporary nature and wouldn't in themselves curb inflation.

Even pro-Chavez entrepreneurs -- and there are some -- evidently had doubts. Empreven president Alejandro Uzcategui said the measures were "positive for the private sector," but he hoped they weren't just a "simple announcement."