MEDIUM TERM ECONOMIC MANAGEMENT STRATEGY
Medium Term Fiscal Outlook and Growth Targets
93. Mr. Speaker, by the end of 2015, we expect to realize a Recurrent Account Surplus of about $222.1 million, 16.4% above the estimate. The Surplus will be derived from the net of anticipated Recurrent Revenue of approximately $733.3 million and projected Recurrent Expenditure of $511.2 million. Non-Tax Revenue is expected to be the main contributor to the favourable outturn when compared to the budget as fees from the CBI Programme will most likely surpass the estimate by 42.3%. I take great joy in repeating that CBI revenue for 2015 is expected to surpass the budget by 42.3%. Far from being destroyed by Team Unity, we adduce incontrovertible evidence that we have rescued the CBI Programme from the ICU ward where it languished at the actions of the Douglas regime and ostracized by our international allies. To God be the glory. It is also anticipated that improvements in the administration of our tax regime will result in Taxes on Income and Taxes on Property surpassing expectations by 22.5% and 28.8% respectively. Taxes on Domestic Goods and Consumption and Taxes on International Trade and Transactions are, however, expected to fall below the targets reflecting the impact of the initiatives that were introduced to remove Import Duties from certain food items and VAT from all food, medicines, funeral expenses and other basic necessities. A promise made; a promise kept.
94. We also upheld another promise, this one to the people of Nevis, when we provided budgetary support to the tune of $20 million to the Nevis Island Administration. Additionally, a dividend guarantee that was paid to one of our creditors was $7 million more than anticipated. Expenditure on Goods and Services is also expected to exceed the allocation by approximately 12.4% primarily as a result of the need to settle various Claims Against Government. It was haemorrhaging of the public purse and less than satisfactory outcomes at trial plus a constitutional anomaly that caused my Government not to continue its relationship with the former Director of Public Prosecutions.
95. Expenditure categories that are expected to fall below the budgeted amounts are Interest Payments which will be approximately 16.1% lower than anticipated and Personal Emoluments, Wages and Allowances which is projected to be 1.1% less than the estimate. The level of Grants, in particular Capital Grants, and consequently Capital Expenditure are also anticipated to be below the budget by 50.0% and 22.3% respectively. After taking into consideration all of the Government’s Recurrent and Capital activities, we are projecting that, for the 2015 fiscal year, we would realize an Overall Surplus in the region of $139.9 million, 1.0% above what was originally estimated and a Primary Surplus of around $172.7 million which would be 2.8% below the budget for 2015.
96. The Primary Balance is an indicator of the funds that are available to the Government to meet its debt obligations. Mr. Speaker, the effective management of the Public Sector debt remains, of course, a core feature of my Government’s agenda. Since we came into office in February of this year, our actions have been consistent with the Medium-Term Debt Management Strategy which, in summary, is to continue to reduce the stock of debt, to further decrease the debt service cost and to minimize the risks associated with having high debt. We recognize that the level of debt is still too high, $1.8 billion or 76.9% of GDP at the end of December 2014, but we are encouraged that it is moving in the right direction. In fact, at the end of September 2015, the total Public Sector debt stood at $1.7 billion or 66.5% of GDP and we expect that it will be further reduced to $1.6 billion or 64.1% of GDP by the end of 2015. The decline realized during the 2015 fiscal year was, in large measure, due to our attempts to further tackle the debt overhang by accelerating some debt payments in keeping with the recommendation of the IMF. That, Mr. Speaker, is a clear signal that debt management is a top priority of my Government’s agenda. Over the medium term, the Public Sector debt is expected to contract even further to reach $1.5 billion or 57.6% of GDP by the end of 2016, 52.1% of GDP by the end of 2017 and 47.2% of GDP by the end of 2018. If all turns out as expected, then we will meet the ECCB’s target of 60% of GDP by 2016 – 14 years ahead of the 2030 revised timeline.
97. Mr. Speaker, as a result of our assessment of the prevailing macroeconomic conditions and the medium term fiscal outlook my Team Unity Government has adopted a Medium Term Fiscal Framework that is technically sound and allows for the Central Government to continue to play a role in stimulating growth while maintaining fiscal prudence. Real GDP growth is estimated at 4.6% for 2016. In this vein, we have adopted two main overarching objectives to guide the preparation and execution of the 2016 Budget. Our objectives are: i) to continue the reduction of the Public Sector debt stock; and ii) the achievement of a sustainable level of growth. These objectives are consistent key policy priorities that emanated from the IMF’s first Post Programme Monitoring review and 2015 Article IV Consultation that were conducted during the period 8 to 19 June 2015. Among other things, we are committed to securing fiscal and debt sustainability, further strengthening in the management of the Citizenship by Investment Programme, preserving financial stability in the Banking Sector and implementing policies aimed at enhancing growth. Although the Monetary Council of the Eastern Caribbean Central Bank (ECCB) earlier this year extended the timeline for achieving the debt target of 60% of GDP to 2030, we are committed to the plan for attaining the target well ahead of the original timeline of 2020. We are also committed to keeping the debt stock at sustainable levels subsequent to achieving the upper limit of 60% of GDP in 2016. The country can count on this Government to avoid squander mania. We eschew the courting of a parasitic oligarchy which fattened its nest under a past dispensation. A Fresh Start has come.
Fiscal Measures and Other Strategic Interventions
98. Mr. Speaker, on behalf of Team Unity, I am pleased to reaffirm the commitment we gave at the National Consultation on the Economy just two months ago, that is, there would be no new taxes as part of the package of measures for the 2016 Budget. However, in support of the fiscal policy stance to keep the public debt on a downward trajectory and to protect the fiscal gains from the past sacrifices, we have identified a number of areas where there is need for the realignment of certain policies, administrative reforms and strategic interventions. The anticipated fiscal actions would principally involve administrative changes intended to facilitate closure of loopholes so that the tax regime could be made more efficient and effective.
99. Further, in accordance with the Government’s Medium Term Fiscal Framework, we will adopt measures to reduce concessions by the equivalent of about 0.5% of GDP and limit the expenditure of CBI–related revenue at a level that will not exceed the equivalent of 2.0% of GDP. Both of these measures would be critical in assisting the Government to ensure the maintenance of an overall fiscal surplus position and to keep the debt on a downward trajectory. The impact of the policy measure related to concessions is expected to have a positive effect on the performance of our key trade taxes namely, the VAT, Import Duty and Customs Service Charge. In 2016, technical experts from the IMF and the Caribbean Technical Assistance Centre (CARTAC) will assist us with undertaking a comprehensive review of the concessions regime and the development of a more comprehensive reform strategy. The time has come for us to revisit the notion that every idea for a new development must be granted concessions or subsidies by the Government. The practice of requesting extensions of previously granted concessions would also be considered as part of the review exercise. I am also pleased to inform this Honourable House that we intend to consult with the Private Sector and other key stakeholders on this matter so that their views can help to shape the reform process. We are hopeful that as a result of the review, the Government would be placed in a better position to operate a more transparent and equitable concessions regime that can benefit both local and foreign investors and ensure that all investors can operate on a fairer and more level playing field.
100. Mr. Speaker, the business environment in which we operate is dynamic and therefore from time to time we would be required to assess aspects of the tax regime to ensure that it is performing within the norms of good practice and established regional benchmarks. In this context, the Ministry of Finance through the Inland Revenue Department (IRD) continues to assess existing legislation and internal practices in administering the tax system. As a result of this work, it has been determined that attention needs to be directed to our Withholding and Corporate Income Tax regimes. The current Withholding Tax and Corporate Income Tax systems are vulnerable to abuse by taxpayers who use transfer pricing and other similar earnings-stripping techniques to avoid payment of the rightful amount in our jurisdiction. This is not a situation we would wish to see continue as we believe that all parties should pay their fair share of taxes. There should be no single group of taxpayers that is unfairly treated or overburdened. In our efforts to limit the potential for erosion of the tax base, we would make appropriate adjustments to the Withholding Tax Act to clarify tax allowances vis-à-vis Branch and Head Office arrangements and to explicitly define the scope to the tax and its application to gross payments and accruals. The potential for abuse through the use of transfer pricing techniques not only affects the Withholding Tax regime but the Income tax system as well. For this reason, in 2016 the definition of transfer pricing expenses as outlined in the Income Tax Act will be revisited so that it is clear that such expenses would include royalties and recharges. Further, work will continue to find the best solutions to ensure a comprehensive update of the Withholding Tax and the Income Tax regimes to reflect current realities of corporate transactions and to fulfil our commitment to operate a tax regime that is based on modern legislation.
101. Mr. Speaker, at the risk of repeating myself, I want to make it clear that the changes to the tax system that are proposed here are not new taxes, but rather reflective of the our administrative focuses on removing tax loopholes, modernizing the laws, broadening the tax base and simplifying the process of determining the taxpayer obligations. These types of actions are important to build good taxpayer relations by providing clear rules which reduce cases of possible dispute between taxpayers and the Inland Revenue Department.
102. Mr. Speaker, the IRD has reported that a number of business owners have expressed a desire to see some changes to the existing Business and Occupation License system with a special focus on the way licenses are issued. The current system requires every individual or business entity who is desirous of carrying on a business, occupation, profession or trade to acquire a license prior to the commencement of operations and the license should be prominently displayed in the business place. The Government recognizes that the current licensing system may not be adequate for all segments of the business community, particularly the growing number of professionals, tradesmen and other service providers who may require a more durable and manageable form of official certification. Therefore, starting in January 2016, the IRD will introduce a card version of the Business and Occupation Licence to satisfy the demands of the emergent business community. All registered businesses would still be issued with the traditional paper certificate version of the license but they would also have the option to obtain a new card version for a small fee. The Business Licence Card will carry the same expiration date as the Business Licence Certificate. The added benefit of this option is improved compliance of licence holders and protection of customers who may find it difficult to verify whether they are doing business with bona fide persons who are licensed by the State to carry out a particular service.
103. Mr. Speaker, the Administrative reforms related to the Ministry of Finance have not been restricted only to the tax regime. In 2015 we commissioned an exercise to review the operations of the Centralized Purchasing Unit (CPU). The CPU has been in operation for over fifteen years and the scope of its services has expanded to provide a wide range of goods and materials including office supplies to Government Ministries and State-Owned Corporations. Therefore, in keeping with good corporate governance and business principles, the main areas of the review include: assessing the adequacy of the organisational and managerial structures, cost effectiveness of the operations, inventory controls, analysis of supply chains, and procurement practices. It is anticipated that the findings of the assessment would be used to reform the operations of the Unit so that the Government can maintain value for money and provide more efficient services to the various Public Sector Agencies.
104. Mr. Speaker, the Team Unity Government takes seriously all of its responsibilities including the protection of public assets. We are dissatisfied with the state of management of Government assets, especially Government owned buildings. We are further dissatisfied with the level of resources that is expended on rental of office space while Government’s buildings are left in a state of disrepair. It is known to all that Government has ownership of several buildings, some of which were recently acquired to improve accommodation for the staff working in the various Ministries and Departments. We believe that the Government owns sufficient property in and around Basseterre to adequately accommodate all of its Agencies. We have therefore commissioned a Committee, led by the Ministry of Finance, to coordinate the development of a Plan for the cataloguing of all Government owned buildings. The Committee will indicate the condition of each property and make recommendations for repairs where necessary. The work of this Committee would also produce recommendations on future use or disposal of these properties. Meanwhile, the 2016 Budget provides resources to support the upgrade of several buildings including the building currently housing the Accountant General’s Department on Church Street, the former John Gumbs Building on the Bay Road, and the former CLICO Building located on South Independence Square Street. We would also advance plans for the upgrade and expansion of Government Headquarters. By the end of 2016, we should realize notable improvements in the accommodation of Government Agencies. The end result would be improved efficiency and productivity in the Public Service and cost savings from rental of office space. These works would have the added benefit of uplifting the physical environment of historic Basseterre. Mr. Speaker, we look forward to and welcome these changes.
105. Mr. Speaker, our vision is for a highly productive and results oriented Civil Service. We expect a fair day’s work from all Civil Servants. We expect to pay a fair day’s pay also. Speaking of pay, I can now announce that the Team Unity Government will in January 2016 accord our Civil Servants, auxiliary workers and pensioners an increase in personal emoluments, wages and retiring benefits of 3%. Further, the Ministry of Finance will be commissioned to work with the Human Resource Management Department to develop proposals for a new wage policy and appropriate remuneration package for Civil Servants covering a three year period, 2017 to 2019. The new wage policy would be informed by the consultants’ recommendations under the World Bank supported Enhanced Public Sector Governance and Efficiency Project. The days of frozen increments are behind us and therefore those Civil Servants who have worked and proven themselves worthy of this merit-based increase in pay can rest assured that they too will continue to receive their increments. My Government welcomes the hard work of our security officers. Many of them work beyond the call of duty to keep us safe. We recognize their contribution in pursuit of the Six Point Plan and today I am also pleased to announce that additional resources would be provided in the 2016 Budget to facilitate a 20% increase in risk pay for our security forces. Increased risk pay will be paid to the Police, Prison, Defense Force, Coast Guard, Fire and Rescue Services – all will be given a Fair Share. We promise to review these at periodic intervals. Further, additional resources have been provided to support payment of a special allowance to the men and women who go way beyond the call of duty to risk their lives on a daily basis to keep us safe.
Conclusion
106. Mr. Speaker, the attainment of sustainable growth and development, and the prosperity of our people are inextricably linked to the achievement of overarching goals such as poverty eradication, quality education, good health and well-being, gender equality and decent work. In September of this year, the 193 members of the United Nations General Assembly, including St. Kitts and Nevis, adopted the 2030 Agenda for Sustainable Development. This new call to action outlines the Sustainable Development Goals (SDGs) which will now build on the achievements of the past Millennium Development Goals (MDGs). The United Nations Secretary General, His Excellency Ban Ki-moon, stated that, “It is an agenda for people, to end poverty in all its forms…for the planet our common home. An agenda for shared prosperity, peace and partnership. It conveys the urgency of climate action….rooted in gender equality and respect for the rights of all.”
107. In this regard, the work has already commenced at the international level with the convening of the 21st Conference of the Parties for the United Nations Framework Convention on Climate Change (UNFCCC) which was held in Paris recently. This meeting has successfully achieved a legally binding and universal agreement on climate change to reduce global warming. As part of this process, each Party to the Convention, including our Federation, has articulated its Intended Nationally Determined Contributions (INDCs) which declared specific actions to address climate change through the reduction of emissions and adaptive measures, and the related financial support requirements. It is anticipated that this new agreement will mobilize resources of $100 billion from Developed Countries to Developing Countries including Small Island Developing States (SIDS), such as St. Kitts and Nevis, as these are the most severely impacted by the effects of climate change. The most developed and wealthy nations have given a commitment to individually and collectively reduce their carbon emissions. Even with these commitments at the international level, we must activate our own national mechanism to chart the way forward for our Federation to effectively manage our response to climate change which is already a factor in the changing circumstances of our lives. We simply cannot afford to wait for others to act on our behalf but rather we must develop the appropriate strategies to meet our national needs while contributing to the wider global objectives.
108. Mr. Speaker, the challenges facing the Federation in sustaining robust growth and development and bringing about meaningful change in the lives of our people must be frontally addressed. Our pursuit of the ideals articulated in the 2030 Agenda for Sustainable Development and our Manifesto 2015 - 2020 must therefore translate into tangible benefits for our people. To this end, my Government will develop and implement the necessary socio-economic policies and strategic interventions to accelerate the transformation of St. Kitts and Nevis. Structural reforms remain an important element in this process therefore, focus would be given to actions that raise productivity and remove bottlenecks to production in order to strengthen growth prospects over the medium to long-term. Building resilience would also be treated as a common thread in developing our sustainable growth and development strategies.
109. In 2016, we intend to maintain our vigour to transform the legislative landscape within the Federation. Therefore, the Freedom of Information Bill introduced in this Honorable House in September of this year will be presented to the public in a series of national consultations to increase awareness and garner feedback. The presentation and debate of legislation related to data protection will also be prioritized as supporting components to the freedom of information regime as well as the enactment of corruption prevention laws in keeping with the United Nations Convention Against Corruption. A suite of good governance legislation will be brought to Parliament in keeping with our mandate to promote transparency and accountability in Government.
110. Mr. Speaker, my Team Unity Fresh Start and Prosperity Agenda will emphasize growth that is job rich. We are encouraged by the impressive GDP growth rate during our first months in office, but we will not sit on our laurels. The challenge is to translate these growth numbers into jobs, into sustainable development of our Nation, and into prosperity for all. To achieve this, we must take a critical look at how policies are developed and implemented, how our laws are crafted and enforced and how we prepare our people to seize the opportunities that are created as a result. The attainment of these good governance ambitions also requires that our public sector is re-engineered into a well-oiled mechanism that is far more service-oriented, knowledgeable, professional, accountable, productive and responsive to the needs of our taxpayers who pay our salaries. We have now entered on the threshold of an era when productivity, performance and pay systems are inextricably linked. The age of entitlement is long past and a public sector operated on the system of meritocracy is a requisite for national competitiveness at the socio-economic level. This first budget of my Team Unity Government is designed to empower our people to seize all opportunities that could transform their lives so that they in turn may help others to truly reap the benefits of a fresh start. We are determined that our Fresh Start and Prosperity Agenda will yield better results for the people of this Federation.
111. In our work, others shall come to define us as a Government steeped in our commitment to improve the lives of our people. Progressive in our outlook, revolutionary in our actions to shake the shackles of perennial poverty and deprivation from our people, committed to help the young generation achieve more than their parents did in all things worthy of human endeavor. Because we care, 2016 shall see policy actions that differentiate our approach to property ownership and land and housing programmes, in particular. We shall transform the people’s health delivery making it better and more efficient. Education and training shall focus on empowerment of youth and adults alike. Development shall start and end with people because there is no meaningful development unless our people experience improved salaries and wages, more wealth, comfort and happiness. Our people must feel empowered enough to tackle the challenges, seize the opportunities and take our beloved country to the next level of growth and development. This shall be the legacy of the people’s Team Unity Government.
112. Mr. Speaker, I so move.
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