Wednesday, October 5, 2022

Chastanet Presents EC $1.12 Billion Budget

- Advertisement -

CASTRIES, St. Lucia, CMC – Prime Minister Allen Chastanet has presented an EC$1.12 billion (One EC dollar=US#0.37 cents) budget to Parliament saying it is the best estimate for both revenue and cost; with the understanding that if the coronavirus (COVID-19)  continues it will impact revenue negatively and increase the cost.

Chastanet, whose ruling United Workers Party (UWP) is gearing for a general election later this year, said that the fiscal package, which contains “no new taxes,” represents a 21.3 percent increase over the revised estimate for the last fiscal year.

But he said it is still lower than pre-pandemic years of 2018-19 and 2019-20 in which revenue was recorded at EC$1.20 billion and EC$1.19 billion respectively.

In a lengthy budget speech, Chastanet said that the projected increase in revenue for 2021-22 relative to the outturn in 2020/21 is consistent with expectations for a gradual but steady recovery of the domestic economy.

- Advertisement -

He told legislators that the recovery will be driven by a confluence of factors, with the tourism sector playing a significant role “as a direct consequence of increased vaccination rates, opening of key source markets and rollback of some travel restrictions.

Chastanet said that the estimates of expenditure are set at EC$1.639 billion, representing an increase of 6.8 percent increase over the projected outturn for fiscal year, 2020-21. He added that recurrent expenditure is estimated atEC$1.360 billion or 83 percent of total expenditure.

Capital expenditure is estimated at EC$278.6 million or 17 percent of total expenditure. Notably, the allocation to meet the debt principal repayments in this fiscal year is set at EC$125.8 million, Chastanet said, adding that “as part of our fiscal strategy two expenditure lines, namely salaries and debt service payments have been identified as a top priority”.

Chastanet told Parliament that his administration intends to finance the fiscal package based on recurrent revenue of EC$1.001 billion comprising tax revenue of EC$909.02 million or 90.7 percent of total recurrent revenue.

He said non-tax revenue will amount to EC$92.69 million while grants amounting to EC $121.26 million will come from friendly governments and multilateral institutions.

Chastanet said that the government intends to receive EC$6.04 million in capital revenue from the proceeds of the sale of assets, while government Instruments, including Bonds and Treasury Bills will account for EC$240.86 million, representing a reduction of 9.8 percent or approximately EC$26.26 million compared to the approved estimates for 2020-21.

He said other loans totaling EC$268.72 million will come from various regional and international financial institutions.

Chastanet told legislators that on the basis of the projected numbers for revenue and total expenditure, both being affected by the “there is a current deficit of EC$232,491,500 and an overall financing gap and deficit of EC$383 million.

“Given this fiscal balance, a policy stance of fiscal consolidation over the medium to long-term is needed to reverse and stop any further deterioration and thereafter to start the process of rebuilding and strengthening our fiscal position.”

Chastanet said that in light of this significant overall deficit “we must proceed judiciously and in a fiscally prudent and responsible manner,” adding that “this will require that we work together in our country’s interest in a spirit of shared sacrifice to improve our revenue performance.

“For this reason…there are not many of the usual tax breaks in this budget that some have grown to expect. I wish to remind this honorable House that these tax-related relief measures to targeted groups of households and businesses are being provided under the framework of the Economic Recovery and Resilience Plan (ERRP) and are ongoing in most cases.”

Chastanet said that it is also worth noting that there are “no new taxes” in this budget, given that the general orientation of this government with respect to taxation is to lower taxes wherever possible so as not to increase the tax burden on our citizens.”

Prime Minister Chastanet said that despite the COVID-19 induced revenue challenges, his administration would be implementing policies aimed at assisting the general population and new measures to support the economy and help smooth out consumption of families as well as to increase revenue collection.

“Mr. Speaker, the period during which frontline workers are able to import vehicles duty-free has been extended until September of the fiscal year 2021-22.  Also, Mr. Speaker, to make the process more manageable for taxpayers, especially given the current COVID-19 related challenges in obtaining relevant documents, the deadline by which individuals and individual enterprises are required to file their personal income tax returns has been extended until May 31, 2021.”

Chastanet said that corporations can engage the Tax Authorities directly where there is a need for extension for filing their corporate income tax returns, as these will be dealt with separately.

“Importantly, Mr. Speaker, during the new fiscal year efforts will also be directed at improving tax administration through recovery efforts to boost revenue collection,” the Finance Minister said, adding that regarding property tax, it is “yet another regime which has been identified by this administration for reform.

“It has long been recognized that this tax regime has typically under-performed and is fraught with a number of issues as was found in a 2015 study by the Caribbean Regional Technical Assistance Center (CARTAC) which identified a number of deficiencies with the current system.

“This property tax regime which was initially based on the rental value of the property is now linked to the market value of the property which is also inherently problematic. Moreover, it would also be a herculean feat to conduct valuations on every property in the country and even so, such valuation would soon become outdated.”

In addition, Chastanet said that the expectation of persons who have paid property tax is that it is commensurate with the provision of a list of services that impact their quality of living or enhance their experiences in a given community.

“Given all these concerns, the government intends to introduce a revised ‘property tax’ system which addresses the concerns and deficiencies cited in the 2015 CARTAC study. The objective of this reform is to establish a property tax regime that is simple, fairer in terms of its incidence and takes greater account of the variations in properties within a particular region.”

The Finance Minister said that the official stock of public debt increased by 10.4 per cent to EC$3.773 billion by the end of 2020.

He said although the year-on-year increase in the debt stock in 2020 when compared to 2019 is higher, this outcome, must be placed in its proper context as an “outlier” given that before the onslaught of the pandemic, the public debt stock grew by an average of 3.3 per cent during the period 2016 to 2019, compared to the period 2012 to 2015, when the public debt grew at an average rate of 6.3 per cent.

Chastanet said the pandemic-induced contraction in economic activity in conjunction with disbursements from rapidly negotiated and secured concessionary debt from regional and international financial institutions, such as the International Monetary Fund (IMF) World Bank, Eastern Caribbean Central bank and the Caribbean Development Bank, resulted in an increase in the debt-to-GDP ratio estimated at 86.5 per cent at the end of 2020.

He said an estimated 75 per cent of the increase in the debt to GDP ratio was due to the sharp contraction in GDP in 2020. The remainder of the increase emanated from an increase in the public debt stock largely related to the pandemic, he added.

Chastanet said that it is important to note that the increase in the island’s debt-to-GDP ratio is similar to what occurred in the Eastern Caribbean Currency Union (ECCU).

“The debt to GDP ratio for the ECCU as a whole registered an average increase from 67.2 percent in 2019 to 85.6 percent in 2020. An even larger jump was recorded in another OECS State, which climbed from 83.1 percent in 2019 to 117.1 percent in 2020.

“However, I wish to assure St. Lucians that, like other ECCU and regional countries, following St. Lucia’s temporary deviation from the prudential path of fiscal sustainability in 2020, the debt to GDP ratio is expected to be on a downward trajectory as the domestic economy recovers and returns to positive growth rates.

“Additionally, the government will adjust its fiscal policy stance and embark on a path of fiscal consolidation in the medium term. Mr. Speaker, these would slow down debt accumulation and allow St.Lucia to converge to the revised ECCU’s regional debt target of 60 percent by 2035. Mr. Speaker, this revision by the Monetary Council in February 2021 to extend the date from 2030 to 2035 for the attainment of the debt target was driven by the pandemic,” Chastanet said.

Headline photo caption: Prime Minister Allen Chastanet (Stock image)

- Advertisement -
Editorial Staff
Editorial Staff
Our Editorial Staff at St. Lucia Times is a team publishing news and other articles to over 200,000 regular monthly readers in Saint Lucia and in over 150 other countries worldwide.

18 COMMENTS

Comments are closed.

TRENDING

Subscribe to our St. Lucia Times Newsletter

Get our headlines emailed to you every day.

spot_img
Send this to a friend