The agriculture move was not hard to foresee. Farm production is clearly one of Raul Castro’s priorities; in his 26th of July speech, he lamented that too much good land is idle, and he called for expansion of the practices that work well within Cuban agriculture. That could only mean greater reliance on
So when Reuters correspondent Marc Frank visited farmers in
We’ll see how widespread this practice becomes. Potentially, it would have three positive effects: increased food supply, downward pressure on food prices, and higher income for the private farmers and cooperatives.
Another Reuters report told of a meeting last Wednesday where the Finance Ministry told foreign companies that as of January 1, they must keep records of hard currency payments they make to their Cuban workers, and the workers will have to pay income tax on them. I understand that a formal regulation is to follow.
For more than a decade, it has been an open secret in
These payments are the obvious reason why Cubans overwhelmingly prefer to work in tourism and the foreign business sector.
Faced with this widespread and illegal practice,
As a result, a worker who earns $200 per month from a foreign company will have to pay the same tax as a Cuban entrepreneur who earns the same amount as an artisan, taxi driver, or home-based bed-and-breakfast operator.
The workers now subject to income taxation probably don’t see this as progress, and one can hardly blame them. Unless their employers increase their pay, these first-time taxpayers will see their income decrease.
From an economic policy perspective, the government has legitimized hard currency payments that put one sector of the workforce at an income level far higher than the average Cuban worker. The message is that it’s ok for some workers to be paid more than others, and the way to address equity concerns is not to stamp out the higher incomes, but to tax and redistribute some of it.
This particular move, if it plays out as described in the initial reports, will not stimulate the economy – but if foreign investment expands in the coming years, the result will be a larger share of the workforce earning hard currency incomes.
What is more interesting is the philosophy behind it, and it will be interesting to see if it appears in other moves in the months ahead.