Tuesday, 17 December 2013

It’s all about taxes

Grenada’s 2014 Budget

Grenada’s Prime Minister and Minister of Finance Dr. Keith Mitchell presented the country’s 2014 Budget Statement to the parliament on Tuesday December 10th 2013.
The budget presentation was anxiously awaited by the citizenry in the wake of the proposed “Home Grown” Structural Adjustment Program.

There has been a plethora of comment about the math of the budget; however I will attempt to address the fundamental underpinnings of the emerging socio economic situation existing in the country which was supposed to shape the framework of that budget.

The theme “Building the New Economy through Higher Productivity and Shared Sacrifice for the Benefit of all” can be described incoherent and unrealistic. The New Economy cannot be built on clichés and slogans. Economic progress can only grace our land when leadership, vision and hard work are applied to our day to day activities. The expenditure allocations are indeed curious. The Ministry of Youth was allocated $70 m or 7.5% of total expenditure. Some observers opine that is a pre-payment for the youth vote in the next elections. How do you explain that the combined allocations for The Ministry of Agriculture ($28.8m) and the Ministry of Tourism, Civil Aviation ($ 25.9m) represent seventy eight percent (78%) of the Ministry of Youth? Isn’t Agriculture and Tourism the mainstay of the economy?

The Prime Minister boasted that Construction sector grew by 20 % over 2012. When the former administration applied 7.5% VAT on selected construction materials, it was considered to be a stimulus. When the NNP assumed office in February, they further reduced the VAT on those same items to 5% claiming that the sector needs further stimuli. As of January 2014 the VAT rate on these same items would be fully restored to 15%. Can anyone explain this logic?

The essence of the revenue enhancement strategy in the budget was increased taxes. In effect the measures will effectively reduce disposable incomes and affect demand for goods and services. If VAT is a fundamental pillar of government revenue base, then reduced sales will affect negatively their revenue projections. Simply put, less disposable income leads to fewer sales which in turn lay the basis for less revenue.
Self denial is evident in that and the pungent smell of politicking is overwhelming. The tax package will certainly impose great hardship on middle income earners. The repositioning of the Income Tax threshold to $3000 per month flies in the face of shared sacrifice. Only about 25% of wage earners earn over $3000 per month. This measure is intended to protect lower income earners who make up the bulk of his political support. Dr Mitchell is therefore trying to remake himself as a champion of the poor, some type of latter day socialist. The notion is indeed hilarious.

The reference to productivity is indeed timely. The public sector must be the first port of call. Inefficiency in that sector is the basis for wastage of the state’s resources not to mention the drag on investment and business in general. But then how can the government lead the charge for improved productivity when upward mobility in the public service stands miles away from the concept of a meritocracy. How can one be a consistent advocate of productivity when planning within the state sector is almost nonexistent, fiscal discipline is absent and where political objectives overwhelms sound economic management.
The Budget is pregnant with uncertainty for the following reasons

The letter of Intent has not been finalised with the IMF
There is no formal agreement with the IMF.
No time table was announced for the commencement of serious negotiations with creditors.
The unions have not given a commitment of the wages issue.
 This level of uncertainty clearly shows that this budget process was seriously flawed and therefore the nation and the international community cannot take this regime seriously.

 The fundaments of our economy cannot sustain it. The dependence on unearned income by way of remittances further exposes a myth masquerading under slogans and empty promises. Statements have been made about the construction of various Five Star Hotel properties on Grand Anse Beach. The Tourism Master Plan of 1997 which the previous NNP administration approved stated
 “Further accommodation development on the Grand Anse area should be restricted to planned extensions on existing properties and all new developments should be sited away in locations away from the Grand Anse Beach”.

Industry sources have questioned as to the seriousness of an investment program of that magnitude when the island suffers from insufficient airlift, shortage of skilled labour and poor product quality.
The debate on the Budget will continue and as the nation await the implementation of the new tax measures especially the income tax adjustment which takes effect at the end of January 2014.

On that note, to all contributors and readers of Caribbean News Now and Voice of the People, and Hello Grenada.  Happy Holidays and Best Wishes.

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