St. Lucia’s budget verdict isn’t pretty

Two days of debate in the parliament of Saint Lucia led by prime minister and minister for finance Dr. Kenny Anthony makes the 2015/2016 budget easy to critique, and no different to remember that there is a price to pay for living beyond affordable means.

St. Lucia's Prime Minister, Dr. Kenny Anthony - (Photo www.telegraph.co.uk)

St. Lucia’s Prime Minister, Dr. Kenny Anthony – (Photo www.telegraph.co.uk)

The figures and policy presented are indeed overcooked in a potpourri of ideological spin that does not fit the economic issues. And likewise, the glory dealings in this budget are evidently wrapped in banana leaves to camouflage the focal point that one handout washes the other, contrary to enhancing economic growth.

As such, mendicancy that is repurposed for electioneering has evolved in the unfavourable legacy of prime minister and minister for finance Dr. Kenny Anthony, crystallized as follows.

  • Raising the Vat threshold to EC$400,000.

Image of budget cutsThis policy is counterproductive to trade, innovation, competition and government revenue generation that is based on trade expansion and job creation. Merchants and traders below that threshold are still required to pay 15% VAT on transactions with no option to reimbursements. Thereby, absorbing all related cost that will eventually pass onto the customer. Also, this policy will hinder data collection and create several anomalies down the line, as the capability for growth is flat lined against national interests.

Such a policy will not strengthen the economy but rather return it to trading on horseback and in the back country, instead of impacting the expansion of trade on Main Street, to provide lower prices, more consumer choice and economic prosperity.

Government should have lowered the threshold to EC$30,000 given the minute scale of the economy, its small population and disappearing middle class in order to capture all and sundry in a real economy of competiveness, efficiency, innovation and to enable better analysis and planning, while introducing a deferred tax system for capital goods.

  • “Persons within the low income bracket will no longer be required to pay taxes, as the majority will now fall below the threshold of $25,000. Effectively, an individual must earn in excess of $2,084 per month (this figure is currently $1,533) to be subject to PAYE (Pay-As-You-Earn). Approximately 19,425 (or 91.3 percent) registered taxpayers will pay less tax or their tax status will remain unchanged due to the proposed changes.. effect from income year 2016.”

This policy has in effect downgraded growth forecast, endorsed low wages, and marginalized a large section of the population to a life of mendicancy, instead of rewarding contributors, promoting national development and elevating personal development.

The inference can be drawn that the bulk of government tax collection will come from the very few, the possible increase in VAT, clever service fees and, who knows, government may very well declare Saint Lucia a colony to the Republic of China (Taiwan).

In previous budgets, and now, the Republic of China (Taiwan) is the main source for contributing EC$56 million in grants and EC$27 million in loans.

What most Saint Lucians were given in this budget is optimistic nuance by the finance minister, while pandering to sections of his base, as follows;

•“These days, a mile of road costs approximately $1.5 million. I often say to our friends in the Minibus Association that the Government of Saint Lucia collects roughly EC$455,000.00 in route band fees, annually. This amount cannot even finance the cost of constructing half a mile of road. Yet, minibuses require decent roads to provide transport to commuters.”

•“Government has decided to waive the payment of Route Bands by minibuses for a period of three years” and “Given the proposed changes to the Income Tax Regime, minibus operators will no longer be eligible for the payment of Income Tax and “The fee for motorcycles, “M” plate passenger vans and farm vehicles will remain flat at EC$150.”

By far, the biggest winners in this budget are mini bus operators, and the dreaded 15% VAT that, when in opposition, Dr. Kenny Anthony declared “oppressive and punishing”.

There is the crippling sound that the impact of this budget will worsen income distribution and force citizens into deeper poverty, from the simple fact that the budget lacks the capability for economic stimulation, which requires adding extra money into the economy, the courage to implement cost mechanisms and the ability to entice new revenue streams in priority areas.

The old rhetoric is still being pulled out from a government that is “concerned” about the size of the deficit, yet continues to look inwards to a more centralized form of governance that encourages more borrowing, and is at odds with the business community to table economic packages for the expansion of business services extra regionally, to create jobs, grow the economy and improve government revenue.

Therefore, to masquerade the inflow of borrowed funds at exceeding high interest rates for non revenue projects that pad social inadequacy, and for the government to steal private sector initiatives and take credit for them without adding new initiatives to complement, but then take out in other programs, the net effect is likely to be zero.

A close reading of the budget further reveals that the agenda underpinning the appropriation Bill last year comprising: “(A) To set our country’s economy on a path of higher and sustained growth and employment; (B) To create sustainable, fulfilling jobs, particularly for our youth; (C) To steer our country’s public finances away from a fiscal cliff; and (D) To build resilience, so that we can bounce back faster from future economic and natural shocks,” and the promise “I believe that the time has come for Saint Lucia, to enact legislation to positively set debt ceiling for governments on the conditions of moving forward. The first move would be to ensure that the constituents set their own fiscal position, and live in accordance with it,” has not materialized.

Consequently, this budget is a substantial ploy, the result of which is a methodology that lurches from one bad budget to another in a dilemma that habours Stoogeville parliamentarians and comedy characters that are detrimental to the livelihood of Saint Lucians.

Once again, despite the explicit utterance in parliament and on political platforms, the finance minister lacks the basis for change in the right direction to counter the creation of a low skill, low pay workforce that continues to reflect the sad state of an economic system still unable to medicate core requirements, as stated by the following results in the budget statement 2015.

•“The performance of the agriculture sector was mixed. While banana exports to the UK declined, improvements were recorded in output of other crops, and in the production of livestock and eggs. Banana exports to the UK declined by 28.0 percent to 8,896 tonnes, reflecting the impact of the 2013 Christmas Eve Trough and a fall in the number of farmers trading with the National Fair Trade Organisation and Tropical Quality Fruit Company in 2014.” 

•“Preliminary estimates for 2014 suggest that activity in the construction sector remains below the level required to help propel the economy. Central government construction grew by 12.8 percent to $130.9 million as a result of increased spending on roads and other infrastructure, housing and settlement, community works and education. However, this was offset by a large decline in construction expenditure by statutory corporations. Construction activity in the private sector declined as foreign direct investment remained weak.”

•“Despite the numerous efforts by this Government to contain unemployment through public financing, sluggish activity in the private sector resulted in a slight increase in unemployment to 24.4 percent in 2014 from 23.3 percent in the previous year. While all groups were adversely impacted by higher unemployment, the effect on females, youth, and persons living in rural areas, continues to be worrisome. Policy actions will continue to be targeted to this area.”

•“The subdued economic environment, coupled with competitiveness issues, continued to impact the manufacturing sector in 2014. However, signs started to emerge of a recovery in some key segments of the sector. The value of manufacturing production fell by 4.3 percent to an estimated $273.5 million, mainly reflecting lower output of alcoholic and non-alcoholic beverages. However, this performance was partially offset by increases in production of toilet paper and processed food items including bakery products.”

•“The possibility of an IMF programme for Saint Lucia has receded” but the finance minister warns that “the period of fiscal consolidation is not over. There is still need for stringent expenditure restraint and reduction and for increased domestic resource mobilization through enhanced revenue collection.”

The words “enhanced revenue collection” is well-groomed, for the simple reason; it is important to remember that when in opposition, Dr. Kenny Anthony declared VAT “oppressive and punishing” but today, he speaks of tax collection in terms of “growth”.

  • “The bulk of the growth, Mr. Speaker, was led by higher collections of both VAT and taxes on income and profits. Receipts from VAT rose by 12.4 percent to $335.9 million and now accounts for more than a third of current revenue.”

The verdict of this budget is a house of pancakes that will take shape in the coming months as businesses make downward adjustment to punishing budget policy that continue to encounter casualties in a dead economy.

The finance minister may have involuntarily made that admission:

  • “The borrowing requirement of the Government remains very high, above prudent and sustainable levels. The quantum of market debt which we have to accumulate to finance the budget remains elevated. We have to reduce this pace of borrowing and for this reason we have to continue to manage our finances carefully and prudently.”

All this points to an economy that reflects diminished competiveness.

The result of which is a government with no measure of a coherent fiscal strategy, supported by policy and programs, befitting to working alongside private investment and the private sector towards national development.

By: Melanius Alphonse


Melanius Alphonse is a management and development consultant. He is an advocate for community development, social justice, economic freedom and equality; the Lucian People’s Movement (LPM) www.lpmstlucia.com critic on youth initiative, infrastructure, economic and business development. He can be reached at malphonse@rogers.com   

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