Honorable Prime Minister Sarah Wescot-Williams and Honorable President of Parliament Drs. Rodolphe E. Samuel,
The SHTA appreciates and applauds the first ever disclosure of the draft Budget prior to initiation of Parliamentary debate. As we presume this initiative is meant to increase transparency of government and inform the public about the process and the state of the country’s financial affairs, we therefore on behalf of SHTA, including member associations and their members, request your attention to the following points.
The total proposed expenditures are stated to increase by over NAf. 25 million; total budget for the year 2012 was NAf. 432.6 million, while 2013 is set at NAf. 457.9 million; representing an increase of 5.85%. By contrast, the St. Maarten Gross Domestic Product (GDP), considered an indicator for the size of our economy, has been decreasing steadily over the last 5 years, without any thought to stimulus or cost controls to reverse the trend.
General principles of sound financial management, regardless of whether private sector, government or household, require that operational expenditures remain in line with income.
In other words, government should be set at a size that the economy and population can afford; one should not try to burden the backs of the people with an extensive, perhaps idealistic government that it cannot realistically afford. Therefore, NAf. 457.9 million in spending translates to roughly NAf. 7,650 per legal resident (regardless of age) per year, using a base of 60,000 residents. Furthermore, the income over the 2012 period fell short of the budget expenditures, by some NAf. 30 million.
The steady and significant increase in government expenditures over the recent years have been funded with increased taxes (most notably turnover tax) and other fees as well as the use of reserve funds government had available—creating an operational deficit. As a result of the higher taxes and fees, the cost of government expressed in a percentage of GDP has increased substantially.
At the same time, doing business and the cost of living in St. Maarten have become more difficult, more cumbersome and more expensive. One of the big advantages promoted as an incentive for breaking up the Netherlands Antilles was to lower the cost of government and to increase government efficiency–thus far country St. Maarten has experienced neither.
The lack of a cohesive and unified approach to stabilizing the economy and securing the overall well-being of the population directly contributes to the poor economic conditions.
Again, it proposed to fund the 2013 increase in spending by a TOT hike of 400% on the retail sales of tobacco and liquor, as well as an increase in the Property Transfer Tax and further attempts to improve tax compliance, which is currently estimated to be only between 40 -50 %, among other measures.
While we certainly applaud any effort to level the playing field with regard to increasing compliance, we do question the achievability of the speculated income from this activity, especially given the planned reduction in personnel expense at the Inspectorate of Taxes and the decreased allotment for BAB assistance.
Achievability is also in question with regard to additional revenue from the TOT increase, especially given the fact that the required legislation has not yet been presented to the Advisory Council and the first quarter is already closed. Increasing the transfer tax may likely result in a further tightening of the real estate market, resulting in even less property sales and further hindering of the construction sector, thereby limiting employment opportunities as well.
A TOT increase on certain alcohol and tobacco at the Retail level, eliminates St. Maarten’s competitiveness on these products; effectively imposing a duty on products which are widely enjoyed by our tourism visitors in all three pillars: Stay over, Cruise and Yachting. The liquor sales category is also already highly competitive. If we can learn anything from prior mistakes we should not even consider this increase.
Take a look back to the 1997 increase on fuel tax, which essentially caused a 50% decrease of the income of both private and public sector on fuel due to the opening of the market on the French side. With regard to liquor sales, there is already stiff competition from onboard the cruise ships, from offshore suppliers and of course, from the French side.
A 400% increasing in taxation will, without a doubt, reduce local sales as well as impose a far more significant effect in reducing public revenues, increasing cost of living and eliminating jobs. In addition, we believe that it will hamper our reputation as a duty free port, when goods that are typically duty free are suddenly much more expensive.
With regard to employment and the upward spiraling of government expenditures, seemingly without consideration for the dire financial circumstances we are facing, the 2013 budget also contains increases in the number of employees for which the average expenses per employee have now risen to a staggering NAf. 100,543 per year. This is more than twice the average cost of a private sector employee, and includes such antiquated measures as the cost of living adjustment (COLA).
The budget also clearly indicates that there will be no efforts to stimulate the economy in order to grow the overall size of the proverbial pie of Country St. Maarten as cuts are planned in areas where it would seem most prudent to expand. Such as the proposed cuts to the Tourism Bureau and the Bureau of Statistics budgets which are projected to be NAf. 2.8 million in total. In our view, the faltering economy of St. Maarten is as much a result of the global financial crisis as it is a result of the lack of consistent destination marketing abroad. Further, the basis for successful marketing is sound statistical information.
To say that we are dismayed with respect to these restrictive and demotivating measures would be an understatement. To emphasize this point we would like to mention Aruba which expects continued economic growth for 2013 of approximately 5%. Aruba has a functioning public/private partnership where it concerns destination marketing, social security and economic policy, just to name a few . Aruba’s tourism statistics in the low season rival that of St. Maarten’s in the high season. Continuing to allow our one economic export to stagnate is shortsighted and detrimental to all households of the island.
Instead of increasing the budget, the government should be focused on economic stimulus as well as austerity measures and reduce rather than increase its expenses and focus on improving the overall investment climate of St. Maarten. SHTA is of the opinion that, at the very least, Government should consider the following:
• Place a cap on total salary and benefit expenditures;
• Address the lack of productivity in the public sector as evidenced by the continued widening of the current-account deficit. The continued financing (in a roundabout way) of the public deficit through the Central Bank cannot continue indefinitely; especially if the causes are not being addressed structurally. Imports continue to exceed exports, most exports in our case being tourism, in other words our productivity is lagging behind. In the private sector – as much as our fairly rigid labor system allows – this is dealt with relatively quickly, although quicker reactions would be possible with more flexibilization;
• Increase employees’ share of medical insurance for civil servants, including FZOG premium;
• Explore a true public/private sector partnership with respect to: (i) the development of a new tax system, (ii) the introduction of an affordable and socially responsible healthcare plan, (iii) the design of a manageable and affordable immigration/work permit system, (iv) Tourism Bureau, (v) development of fair and efficient labor laws
• Occupy the new government building and reduce rent expenses;
• Restore the Tourism Marketing budget to its original level;
• Reduce taxes (for instance reduce wage-and income tax; immediately dial back the TOT % to no more than 3% in anticipation of a simplified tax system (please see the SHTA letter to Parliament of 04/04/2013 regarding the proposed TOT increases for a more comprehensive insight of the destructive nature of this particular tax );
• Postpone NV GEBE concession fees and use the available funds for a reduction in electricity and water rates;
• Implement a comprehensive multi-ministerial economic growth strategy, as soon as possible.
SHTA and its member associations insist that Government and Parliament take note of the above recommendations and seriously review the budget presented to Parliament and make the necessary adjustments to decrease the budget to a more affordable level. Failing to do so will result in a further slowdown of the economy, failing businesses, higher unemployment, more poverty and increased crime. Failing to act responsibly now will make the present Government and Parliament responsible for the resulting additional hardships put upon the people of Country St. Maarten.
As always, SHTA remains available for constructive efforts to improve the quality of living in St. Maarten but would like to stress that the realities of our situation must be taken into account starting immediately with this proposed budget.
At some point we should address the consequence of living beyond your means. In terms the average person can understand
E. Lee on behalf of the SHTA Board
St. Maarten Hospitality & Trade Association
Representing a broad range of companies including amongst others: the hotel, restaurant, catering and entertainment industry, wholesalers, retailers, real estate, marine trade, financial and legal services, taxi associations, car rentals, construction companies, and environmental organizations.
Foundation Tax Committee