Minister says it’s a better way forward and for a brighter future for all
Minister of Finance Hiro Shigemoto, announced on Thursday that the Council of Ministers finalized its Deficit-Reduction & Recovery Program," as part of the process for "a better way forward and for a brighter future for all."
The country had a budget deficit according to the Committee of Financial Supervision CFT of Naf.130 million. Based on the Consensus Kingdom Law on Financial Supervision for Curacao and Sint Maarten, Sint Maarten has to present a balanced budget by December 15, 2010. In the past under the status of Island Territory, previous governments missed many deadlines and we do not want to follow that trend as a country, Minister of Finance Hiro Shigemoto said on Thursday.
"Since October 12, 2010, Government started a review of the national budget and this has been an on-going process. Government must demonstrate that we can handle our own affairs and that we are willing to pay for the services that are required to provide a certain level of quality of life for our people.
"These are difficult times; difficult times are all around. If you have been watching the news of late, you will see that various countries especially in Europe have had to implement austerity measures in order to cope with the impact of global economic-financial crisis. Even in our region (Barbados, St. Kitts and The British Virgin Islands) island nations have had to increase taxes (Barbados increased its Value Added Tax from 15% to 17,5%) in addition to introducing new taxes. We are in the same boat, but our situation is much more difficult. We as country are not able to borrow money to cover our budget deficit (general fund), therefore we have to cut expenditures and increase revenues to balance our budget.
"We do not have anybody to bail us out or give us a loan. Becoming a country has its responsibilities and obligations and we now have to be able to make it work and we can do that as a nation with everybody onboard in this national effort. There is light at the end of the tunnel and things will get better.
"After inheriting a multi-million guilder deficit from the previous National Alliance led-government, we have the responsibility to solve the problem rather than throw up our hands in despair. We have a duty to you the people to fix the wrongs and restore balance to the country’s finances," Minister Hiro Shigemoto pointed out on Thursday.
The Minister added that during his and Vice Prime Minister Theo Heyliger’s working visit to Holland last month, an effort was made with Kingdom Government representatives and others to seek leeway in having a budget deficit for a certain period that would allow the country to implement cost cutting measures and collect outstanding monies from the former Netherlands Antilles Central Government.
The Dutch Government representatives were adamant that Sint Maarten would have to balance its budget. To understand the situation at hand one needs to be able to understand what the budgetary situation was then, where we were, and where we have to get too with the figures, and prior to becoming a Country and what the projected situation looks like now that we are a country.
"If you take the deficit as reported by the CFT at Naf.130 million then you take the corrections that Sint Maarten has made in rebuttal to the advice prepared by the CFT you get the following picture:
"Naf.130,000,000.00 deficit minus a correction of Naf.9,000,000.00 as revenue from moving the monies from the Capital Investment chapter for Cooperative Economic Initiative (SEI) then one also has to move the income over to the general fund, thereby creating a correction of Naf.9,000,000.00. In its advice, the CFT counted the plan of approach for Justice twice thereby creating a second correction this time at Naf.15,000,000.00.
"The third correction deals with the loans for study financing (Naf.4,000,000.00) being removed from the capital investment chapter and the final correction on the estimation of the CFT on the expenditure side dealt with a typo of Naf.3,600,000.00 whereby the CFT meant to type Naf.400,000.00 but typed Naf.4,000,000.00. The total amount of corrections on the expenditure side brings down the deficit to the sum of Naf.98,400,000.00.
"There were also corrections on the income side of the budget which in Sint Maarten’s opinion were too conservatively estimated. For example, the CFT estimated the collectible amount for wage tax at Naf.11,500,000.00 too low. Our collected revenues for wage tax thus far indicate that for 2010 the amount of wage tax Sint Maarten collected is in line with what was collected in 2009.
"The estimation of Sint Maarten for all major taxes including wage tax in 2011 was based on the revenues collected for 2009. So this correction was made thereby increasing the wage tax back to the 2009 levels (Naf.+11,500,000.00). The CFT also estimated the revenues for Turn over Tax (ToT) very conservatively. This again was corrected back to the 2009 level by adjusting the revenues for ToT by Naf.5,000,000.00 upwards. These corrections made by Sint Maarten then brings the deficit down to Naf.81,900,000.00.
"First and foremost has been the effort of Government to reduce expenditures prior to the consideration of any income-generating measures. Cost cutting measures will impact all ministries of government at this early stage of country status to the tune of close to Naf.36 million. Certain investments and additional personnel will be put on hold for at least a year. In this process, none of the civil servants will lose their jobs or see a reduction in salaries". Government will also focus on creating a safety net and improve services for the public.
"The government decided on several cost cutting measures totalling Naf.35,900,000.00 in the areas of Social Security Bank SVB insurance for family members of employees in the private sector, Education, partial freezing of personnel salaries, and additional measures. This was no means an easy task, yet it was absolutely necessary to be able to balance the budget. These cuts were the absolute amount that could be made in order to trim what little fat there was in the draft budget 2011. It is important to also mention that there aren’t any new policies included in this draft budget.
"The governing program is not included either in the present budget. This draft budget can be called an emergency budget which is full of sacrifices we have to make as an emerging country which started with a deficit in human capital, necessary capital investments and other deficits in services.
"Sint Maarten used to generate as an Island Territory within the Netherlands Antilles approximately Naf.265,649,559 income. The additional revenues that came along with becoming a Country within the Kingdom are Naf.116,266,666, together this totals Naf.381,916,225.00. The total costs of the Island Territory of Sint Maarten in 2010 stood at Naf.282,000,000. The costs associated with the extra tasks that Sint Maarten took over as a country was Naf.105,862,832.00.
"In addition to this an additional amount of Naf.22,500,000.00 in personnel costs was added to the budget as a result of the indexation of the civil servants salaries in 2011 and the back service for pension premiums which would be owed if the indexation of 5,3% would be added to the salaries of civil servants in 2011," Minister Shigemoto explained.
The total budget of the Country Sint Maarten for 2011 stands at Naf. 444,942,925.00 after cost cutting measures of Naf. 35,900,000.00 and income generating measures of Naf.46,000,000.00, and as a result, the deficit of Naf.81,900,000.00 is then reduced to a balanced budget.
The income generating measure of increasing the turnover tax from 3-5% is not across the board. Basic commodities such as bread, milk, rice, eggs, sugar, flour, chicken, baby products, grain, beans, flour, fruits, and greens will be exempted from Turn over Tax. At the other side of this increase lies the improvement of government services offered to the public at large. Government has an obligation to improve its services to the public.
"There is no other responsible way than the implementation of a Deficit-Reduction & Recovery Program. It is clearly a time to come together and show solidarity to our new country. For many decades Sint Maarten has been home to many from all over the world and the country has provided countless economic opportunities for all of its inhabitants.
"Now Sint Maarten as an emerging country in challenging times needs its inhabitants to be resolute, resilient, steadfast and contribute back to its development into a brand new nation. Sint Maarten is a unique place and while it is exposed to a common problem throughout the world (World economic/financial crisis), it is also challenged in its new development into a country. Sint Maarten must build a nation at a time when the economy is down, with sparks of improvement. It must build from scratch its capital, human and otherwise. It must have a balanced budget while not being able to borrow to do so. The light at the end of the tunnel is signified by the resilience of our people.
"Clear and credible measures are needed to deal with the fiscal deficit. Failing to tackle the deficit quickly will lead to serious problems and the possible intervention of the Kingdom Government with "higher supervision," no one desires and certainly not the government.
"We have studied the financial situation of the nation very diligently taking into consideration global economic growth, our own economy at this point in time, and the benefits of taking action, and most importantly measures that won’t seriously impact our own fragile economic recovery. We do not want to burden the nation with a whole set of new income-generating measures, however we only have a small window of opportunity to pass our Deficit-Reduction & Recovery Program by the December 15 CFT deadline, and the Council of Ministers is very confident that we will be able to meet the aforementioned date," Minister of Finance Shigemoto said on Friday.