Communist Party document details layoffs, payroll taxes along Cuba’s path to economic reform

Document charts Cuba’s path to economic reform

HAVANA — An internal Communist Party document envisions a radically revamped Cuban economy, with a new tax code, freshly legalized private cooperatives and a state payroll no longer shackled by the need to support at least a half-million idle or unproductive workers.

The document — obtained Tuesday by The Associated Press — also offers a cold dose of reality for those who think reforming one of the last bastions of Soviet-style communism will be easy: It warns that many of the new businesses will be shuttered within a year.

The 26-page document fleshes out some of the details of sweeping layoffs of 500,000 workers by March 2011 that Cuba announced Monday in the most dramatic reform instituted since President Raul Castro took over from his ailing brother, Fidel, in 2008.

Workers at the ministries of sugar, tourism and agriculture will be let go first — and some layoffs at those entities already began in July, it said. The last in line for cutbacks include the Civil Aviation sector and the Ministry of Social Services — the very agency charged with overseeing the layoffs.

No government sector appears to go untouched, with cuts slated for Cuba’s vaunted athletics program — long favored under sports-crazy Fidel Castro since the early days of his 1959 revolution — and even its Health and Education Ministries.

Taken together, the plan represents the largest shift to private enterprise since the early 1990s, when the collapse of the Soviet Union forced cash-strapped Cuba to legalize the U.S. dollar and allow people to open private restaurants and small vegetable stands. Many of those reforms were rolled back once the severe economic crisis eased.

It was Fidel Castro himself who led the effort to scale back those reforms — and now his brother is in charge. Indeed, analysts said the tone of this week’s announcement is entirely different, signaling that the changes are here to stay.

“When they expanded self-employment in the 1990s, it was to get out of a crisis, and officials really didn’t want to talk about it,” said Phil Peters, a Cuba specialist at the Lexington Institute near Washington. “But here, Raul Castro has decided that the government and its enterprises have to shed a large number of employees, and so this shift to the private sector is to achieve one of his strategic objectives.”

The document obtained by AP — which is dated Aug. 24 and laid out like a PowerPoint presentation with bullet points and large headlines — said many laid-off workers will be urged to form private cooperatives. Others will be pushed into jobs at foreign-run companies and joint ventures. Still more will need to set up small business — particularly in the areas of transportation, food and house rental.

It even explained what to look for when deciding whom to lay off. Those whose pay is not in line with their low productivity and those who lack discipline or are not interested in work will go first. It said some dismissed workers should be offered jobs in the public sector.

The plan hints at higher wages for the best workers — something Raul Castro has been promising for years — but said, “It is not possible to reform salaries in the current situation.”

The outline includes a long list of “ideas for cooperatives,” including raising animals and growing vegetables, construction jobs, driving a taxi and repairing automobiles — even making sweets and dried fruit.

But it warned that many of the fledgling businesses won’t get off the ground because laid-off workers often lack the experience, skill or initiative to make it on their own.

“Many of them could fail within a year,” the document said, without outlining what to do with people whose enterprises go under.

The reforms received a lukewarm response from Washington, with a State Department spokesman noting the U.S. is also interested in seeing political change on the island.

“Opening the Cuban system — economically and politically — is clearly in the interest of the Cuban people,” State Department spokesman Charles Luoma-Overstreet told AP. “If these changes in fact provide for more space for individual Cuban entrepreneurs and businesses to operate, that would be positive.”

Already, 823,000 Cubans work in the private sector, including about 144,000 that work for themselves legally. The state still employs the other 84 percent of the 5.1 million-member work force.

Those statistics don’t include an unknown number of Cubans working quietly on the black market, who pay no tax on what they earn. In a country where doctors and scientists make only slightly more than the national average monthly salary of $20, it is not uncommon to see surgeons driving illegal taxis in their spare time.

The internal document refers to a “new tax system” that will be “more personalized and more rigorous.” It says taxes will be collected on wages, sales, social security payments to retirees and on small businesses that employ people.

The payroll tax is particularly striking, as it envisions some Cubans getting rich off the labor of their compatriots, a major departure for a government that long said it was marching toward an egalitarian utopia.

Some doubt the change can be pulled off.

Oscar Espinosa Chepe, a state-trained economist who is now an anti-communist dissident, said the changes are long overdue. But he worried that the government would not create an environment conducive to private enterprise and instead would try to mandate free enterprise from above.

“If they are going to start cooperatives, they need to let people make their own decisions, without imposing anything on them,” he said. “The cooperatives need to be real initiatives of those doing the producing, not created from on high.”

Peters, who has long favored expanded cooperation with Cuba, acknowledged the challenges, but said he had no doubt the government would follow through.

“These are serious changes that are going to expand the private sector in Cuba and improve the welfare of many thousands of Cuban families as they engage in entrepreneurship,” he said. “There are going to be zigs and zags because it is a big change, but it is clearly a move toward a much larger private sector inside a socialist economy.”

Euridis Rivero, 34, who makes a living selling pizza and ham sandwiches from his private stand in Havana, could be a vision of Cuba’s future. He pays 315 Cuban pesos ($15) a month in taxes, and keeps any other profits for himself.

Rivero said the sweeping changes announced Monday are good, but that many who have grown accustomed to a steady state paycheck will have trouble adjusting.

“People are worried,” he said. “They like working for the state, but the state can’t afford to pay them.”

Associated Press writer Will Weissert in Havana and Matthew Lee in Washington contributed to this report.