economy

Surplus to fund tax cuts

Lowering the income tax rate on residents who make between $800 and $860 a month will cost the government about $8 million in revenue this year.

The tax cut was announced by President Martín Torrijos on Saturday. It was part of his package to help residents deal with the rising rate of inflation in the country. About 40,000 people will benefit from the tax cut.

The drop in revenue will be covered by the government's surplus from last year's budget.

The government plans to make more widespread tax cuts in 2009 when it expands the income limit to $2,500 monthly. That is expected to cost the government about $35 million in revenues.

Economists welcomed the initiative, saying that it will help consumers.

"The measure is appropriate, considering the inflationary situation in the country and the large surplus in 2007," said economist Aristides Hernández.

The government also plans on raising the cap for preferential interest rates for mortgages from $62,500 to $80,500.

Hernández said that change will enable many Panamanians to shop for homes in the areas around Panama City that may have been out of their price range.

"This will ensure the continuity of the construction boom," the economist said.

Torrijos has also pledged to reduce tariffs on some imports, with the goal of lowering consumer costs.