Commentary: St Lucia’s finance ministers flip flop on economic data

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Melanius Alphonse is a management and development consultant, a long-standing senior correspondent and a contributing columnist to Caribbean News Now. His areas of focus include political, economic and global security developments, and on the latest news and opinion. His philanthropic interests include advocating for community development, social justice, economic freedom and equality. He contributes to special programming on Radio Free Iyanola, RFI 102.1FM and News Now Global analysis. He can be reached at [email protected]

By Melanius Alphonse

With the third session of the Eleventh Parliament in Saint Lucia scheduled for March 20 and the procedural sitting on March 21, and March 22, when the estimates of expenditure will be debated in the House of Assembly, for the financial year 2018-2019 in the amount of $1,487,583,200, the prime minister and minister of finance has not disclosed the required schedule for the fiscal policy presentation commonly referred to as the Budget Address.

Perhaps last year’s debate and unexplained 40-day adjournment is still fresh in the mind of the prime minister, still thinking of a new approach to throw policy into confused limbo.

However, observers have not lost sight of the government’s fiscal strategy, development plans, and policy; and in what universe the EC$1.5 billion in the 2017/18 estimates of revenue and expenditure, approximately EC$26 million less than 2018/19 financial year 2017-2018, makes sense.

At a briefing last Tuesday, minister in the ministry of finance, Ubaldus Raymond stated in relation to the island’s unemployment rate: “We said that we will have a new Saint Lucia. Fifteen months later, I can report to the nation that unemployment has dropped from the 24.5% that we found; it is now 20.1%.”

Last November, just five months ago, there was great fanfare by the government that 16.8 percent was an improvement in the unemployment rate of 20 percent in the same quarter of last year.

Many were uneasy about that claim, understanding that reduced public spending even by one percent of GDP has a parallel impact on labour markets – given annual spending cuts from cancelled major capital projects immediately upon coming to office in June 2016.

Simply, cuts of these magnitude impact government services, consumer spending and other forms of aggregate demand. But it is unable to explain inflation, private sector services and their special interest, people happiness, population, and growth. That includes reputations in the ballot box.

Director of statistics, Edwin St Catherine, explained that it is believed that the additional jobs are ‘vulnerable’ ones, since they have not fully taken root in the private sector, which is responsible for driving most of the employment that is created.

“We think much of these additional jobs were created in the accommodation and food services sector or the hotel sector, and we also think that there was more employment available in the construction sector.”

On economic growth, Raymond said: “Today we can boast and say that we are no longer the least performing jurisdiction in the OECS. Today we can say proudly that we are part of the top three in the OECS. We have recorded, as a country, a 3% growth rate.”

This may well be the case for systemic and statistical formulated growth, “due primarily to positive developments in their tourism and construction industries”. Take for example the cozy manner of issuing 30 direct contract awards, among compliant friends and businesses in the making of an oligopoly system.

On the subject of debt, Raymond said: “I am proud to report, although there was an increase in the debt situation in this country, it was very marginal; in fact, the increase is actually decreasing. There’s a deceleration of the increase in our debt situation in this country. In fact, it is the very first time, from year to year, we have a debt to GDP that has actually gone down.”

Actually, CDB data on fiscal performance and debt reflects Saint Lucia’s debt /GDP ratio for 2016 at 66.7 % and 2017 at 67%, a 0.3 % increase.

By Raymond’s appraisal, if 3% growth rate and 2.5% in VAT merits a celebration, then the economy is buoyant, and it should be easy to dismiss the government’s difficulty in finding the 40% of revenue assigned to salary and wages: 90% non discretionary expenditure and mounting dept of EC$3.2 billion in debt.

Moreover, why is the government keen on privatizing the St Lucia Marketing Board, the Fish Marketing Corporation, schools and hospitals, including Owen King EU Hospital?

All while giving away tax concessions, duty free concessions and withholding tax exemptions to “all-exclusive hotel(s)”: padding consulates, contracting Ernst & Young to produce the budget, sidestepping civil servants that are trained to perform this function.

Still, Raymond claims the government is working towards debt control. If this is the case, this involves structural reforms, incentivizing local entrepreneurs and the work force and implementing measures that reward cost-consciousness in government in contrast to empire-building.

For example, central tender vs. wholesale direct contacts. The dependence on net capital inflows to support debt-led consumption: the depreciation of state assets for mergers and acquisitions, at the expense of core responsibilities of the labour market and entrepreneurs. In sum, unbridled capitalism is roaring back with the privatization of public assets.

So, there is hardly any more explanation needed that this government or even a new government will not have fiscal or monetary space to respond to any crisis.

In this current fiscal year, government is expected to increase taxes (which they will), stabilize unpredictable revenue sources, tolerate a deficit, and/ or cut spending considerably. Seeking daily updates from the treasury in order to sign government cheques is taboo and a consequence of chronic disrepair. Thus there is an immediate need for consolidation, organization and modernization of the public service and its services.

Leading up to the June 2016 election, Allen Chastanet announced “Five to Stay Alive” – a package of policy and tax relief measures designed to turn around Saint Lucia’s economy. “Number one. The immediate reduction and ultimate removal of the dreaded Value Added Tax.” “We will find a more creative way and a less onerous way of raising revenues now generated by VAT.”

January 2017 saw a VAT reduction from 15% to 12.5%. Raymond continued: “I can say to you that despite the rate reduction, the government receipts are very, very healthy. In fact, when we looked at the projections of the VAT reduction from 15% to 12.5% we said, as a government, based on the projection, [we] would have actually foregone . . . approximately $52 million. The economy performed so well that we did not see a reduction in our receipts by $52 million in terms of VAT but only $27 million. It shows that the economy is very strong; the businesses, households, they are responding very positively to our tax regimes, our tax changes…”

In a follow-up interview, now customary with this administration, the finance minister explained price-gouging is not commonplace across the country on account of inflation of 0.01%. The prime minister maintained:

“I was very clear at the beginning. I was criticised heavily when I said in reducing VAT I realised I cannot tell the businessman whether he should put the money and give it back to the customer, or whether he is going to do it to improve his bottom-line. But this argument that the government is going to lose out, we don’t.

“If they don’t put it to the customer, and they put it towards their profit margin, then government collects the taxes in the form of corporate taxes. Now, if you are in a competitive industry, you are more than likely going to pass on these savings to the customer. But even without that, the same people that Philip Pierre was talking about, the people who are not that VAT registered have made a significant savings. And those are the same individuals, these that tend to be small mom and pop shops. These are individual people who own their small businesses. They have made an immediate savings.”

Notwithstanding small mom and pop shops, effective 14th March 2016, the VAT threshold increased to $400,000 from the previous threshold amount of $180,000, and the finance minister is therefore short on substance.

The question remains: EC$25 million in VAT is unaccounted for in central revenue and, likewise, what happened to the “stream of revenue will come from an increase in the excise tax on gasoline and diesel which will be increased from $2.50 a gallon to $4.00. This will take effect from June, 2017.” ~ Budget 2017

Therefore, the government’s fiscal position deteriorated in 2017 reflected by cuts in major capital projects on assuming office in 2016, buttressed with additional borrowing.

• 2017/18 – Estimate of revenue and expenditure EC$1.5 billion (approx: EC$440 million in borrowing)

• 2018/19 – Estimate of revenue and expenditure EC$1.4 billion (approx: EC$770 million in borrowing)

There are notable variances in Interest charges; recurring expenditure, wages, and salaries, capital expenditure. primary and overall balances and net financing

On Saint Lucia’s future Raymond said: “I’m expecting things to be much better when we as a government implement our foreign direct investment.”

More troublesome are the DSH plans for Vieux Fort and policy amendments to the citizenship by investment programme that will change the face of this country. What happened to the concept of protecting our national interest, the rule of law and respect for human rights?

This is also a threat to national security and a painful clash of dire economic management skills, albeit elected on hopes that private sector experience would clean up government corruption.

But on a daily basis the public lives in panic at the sacrifice of our basic humanity, constitutional rights and the political fear of victimization, resulting from an absence of professionalism and an abundance of destabilizing acts. This has turned governance into a crisis of character and an experiment of wilful lying and gross incompetence.

In under two years, these ideologues are more at ease attending to special interests, cooking-up deals and amassing personal gains than the application of sound policy and commonsense to the future of Saint Lucia.

Absent timely intervention, there’s little chance Saint Lucia will avoid a looming crisis, unless there is a major rethinking, a pendulum swing to new socio-economic policy and fixes that are not dysfunctional and a government of integrity.

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