Presentation budget 2012 (DRAFT 2/20/2012)
Madam President, Members of Parliament, Madam Prime Minister, Colleague Ministers, Support staff of Parliament and the Council of Ministers, Secretary Generals, Members of the Cabinets of the Ministers, members of the audience, radio listeners, those watching via television and internet streaming, members of the press,
Let me first of all take this opportunity to thank all of the employees who assisted one way or the other with the compilation of the draft budget 2012. The Secretary Generals, the Controllers, the Concern Controller, the department of Financial Policies and budget which is headed by Ms. Marcella Wigley, also in that department Mrs. Catherine Connor Arrindell, Mr. Emilio Kalmera, Ms. Julisa Frans and Ms. Diahenn van Heynigen. These professionals are the architects of the budget and have worked tirelessly to bring the draft budget submitted by the Ministries in line with the accountability ordinance and the Kingdom Law on Financial Supervision Curacao and Sint Maarten. And last but definitely not least the members of my cabinet Mr. Jarl Maduro, Mr. Cleveland Beresford and Mr. Dwayne President
On behalf of the Council of Ministers I present to you the draft budget 2012.
In this presentation I will give you an overview of the main items in the budget 2012, I will also give a brief introduction to the budget process and the budget cycle 2012 to date. Then I will go over the main budget criteria, the specifications of income and operating expenses as well as the capital expenditures the national debt and related interest expenses compared to the interest norm. At the end a short analysis of the main deviations between the 2011 budget and this 2012 budget will be given.
The completion of the 2012 budget took much more effort than originally expected. Although we had a handicap-start (late in 2011) we were committed to finalize the process before the budget year would start. Unfortunately this did not happen mainly due to "balancing issues" of the operating account. Also this year, after a full year of operating as a Country all Ministries submitted their budgets that were far exceeding the available means and this was mainly due to having experienced what is necessary to run the Country.
The budget 2012 has been prepared in accordance with the "Comptabiliteitsverordening" and the "Consensus Rijkswetgeving Financieel Toezicht Curacao en Sint Maarten". In very general terms, the criteria used are that the total of operating expenses should not exceed operating income (balanced budget), that income and expenses are estimated conservatively but realistically. In addition interest expenses should not exceed the interest norm.
Other set criteria are that the tax burden should be affordable and the quality of the public services acceptable.
See also slide 4
Although the Ministry of Finance coordinates the budget process, it should be clear that each Ministry is responsible for its own budget. The process starts with setting the framework within which each Ministry has to budget. The total of the operating expenses of all Ministries and Parliament including Councils, should not surpass the estimated income for the year. The division of the income pie is approved by the Council of Ministers upon advice of the Minister of Finance. From this point on each Ministry will present its budget to the Ministry of Finance that will prepare the draft Country budget to be approved by the Council of Ministers, commented by the CFT and Advisory Council and approved by the Parliament after which the Governor will sign the budget into law when accompanied with positive advices by CFT and Advisory Council.
Overview operating expenses
The total operating expenses for 2012 are budgeted at NAf 432.5 million (2011: 420.9 million) which means an increase compared to the budget of 2011 with NAf 11.6 million or with 2.8%. The analysis of the main increases/decreases per Ministry are being addressed further down in this presentation.
Overview operating income
The operating income 2011 includes incidental grants. In the 2012 budget no grants are included. The main increase in income concerns extra income in income taxes (NAf 24 million). In paragraph 2.7 an overview is given of the measures taken to increase income. The measures are all aimed at increased compliance.
Overview of operating income and expenses and capital expenditures and financing proceeds
As required, total operating income and expenses balance (no deficit no surplus). The projected capital expenditures, including study loans, will be financed by own cash reserves, bonds to be issued and free means from depreciations material fixed assets.
Operating expenditures per main economic categories
The personnel expenses are more than 40% of the total operating expenses followed by goods and services (27%), subsidies and contributions (23%). Operating expenses are expected to grow 2% annually as from 2012. A substantial part of the subsidies and contributions includes personnel expenses. Personnel expenses are further specified in slide 26.
Operating expenses pie
This graphic presentation of the operating expenses gives a better idea about the share of the main economic categories in the total operating expenses.
GDP is expected to grow with 0.2% annually. In order to cover the increase in expenses, extra measures will be needed to be able to balance the budget. Those measures will be mainly focused on compliance. At this moment there are insufficient data to project growth, however, there are signs that the economy is picking up (occupancy rates, cruise passengers).
Wage- and income tax account for 32% of total income followed by turnover tax 28%, profit tax (9%), other taxes like gasoline excise tax, transfer tax, etc. (10%) and other levies and retributions like bank license fees, concession fees, casino and other business license fees etc. (21%).
As slide 13
This schedule gives an overview of income compared to the actual income 2011. The increase in wage- and income tax is due to actions taken by the tax authorities in the real estate sector and should lead to substantial increase in income tax. The increase in turnover tax is due to the fact that in 2011 only 11.3 months of turnover was subjected to a rate of 5%.
This schedule gives a breakdown of the budgeted other taxes for 2012 compared to actual 2011.
Levies and retributions
This schedule gives a breakdown of the main income items of levies and retributions. Concession fees represent concession fees from GEBE, Harbor and Airport compared to actual 2011.
Wage- and income tax
The jump in wage- and income tax is mainly due to extra income tax expected from non resident property owners. Although the expected additional income includes retroactive assessments, a structural increase in wage- and income taxes is expected due to actions taken to increase compliance (see also slide19) .
GDP-wage- income tax
Over the last 10 years, income from wage-tax and income tax as a percentage of GDP has been declining from 10.2% in 2002 to 8.3% in 2009. Efforts are being made to bring back the level of wage- and income taxes through actions to increase compliance. The actual income and wage tax for 2010 and 2011 amount to NAf 114 million respectively 122 million.
Slide is self explanatory. Before 10-10-10 Sint Maarten was entitled to one third of the income (revenue sharing arrangement). In 2011 (February) the rate was increased from 3% to 5% with some modifications in the law.
Income Turnover tax, Income and wage tax and GDP
See comments slide before.
Profit tax collected in one year concern profits realized in the year before.
Expenses, Parliament and Councils
The increase in expenses of the Parliament and Councils compared to the 2011 budget is caused by an increase in personnel occupancy (NAf 2.8 million) and increases in travel expenses (NAf 0.9 million), advisory services (NAf 1 million), courses and communication
Expenses, Ministry of Finance
The increase in expenses of the Ministry of Finance compared to the 2011 budget is caused by an increase in personnel expenses (NAf 2.4 million), an increase in interest and depreciation expenses (NAf 2.6 million) and a decrease of NAf 1.8 million concerning USONA funded Verbeterplan that was executed in 2011.
Expenses, Ministry of Tourism, Economic Affairs, Traffic and Communication
The decrease in expenses of the Ministry of Tourism, Economic Affairs, Traffic and Communication compared to the 2011 budget is caused by an increase in personnel expenses of NAf 2.2 million and a decrease of NAf. 5,7 mln in USONA/SEI funded projects included in the 2011 budget.
Personnel expenses excluding cost medical care increases with almost 15 % due to salary adjustments and extension of work force (5.5%). Total personnel expenses including personnel expenses of the subsidized foundation like the foundations for education and other and including the cost of medical expenses personnel amount to about 55-60% of total operating expenses. Any increase in personnel expenses has a serious material effect on the total budget. Personnel expenses, salaries, wages benefits and social charges need to be controlled as soon as possible in order to be able to keep the budget in balance in the future.
Capital expenditures include the cost of completion of the new Government building, the cost of infrastructural projects, including the ringroad. The total of capital expenditures of NAf 65.6 million will be financed with own available cash (NAf 23.8 million), bonds to be issued (NAf 37.3 million) and means available from depreciation material fixed assets (gewone dienst).
During 2011 the pre financing loans have been refinanced with a bond issue of 2.5%. No bonds were issued to finance the capital expenditures in 2011 as yet. The actual debt position at this moment is therefore lower than budget and the debt to GDP ratio in the range of about 23-25%.
The total of interest expenses (of the collective sector) should not exceed the interest norm. The interest norm is calculated at 5% of the average income of the collective sector over the last three years. The actual interest expenses are below the interest norm.
Any changes made to the budget during the handling of the budget in Parliament means that the draft budget would have to be re-submitted to the CFt for advice. If these changes are budget neutral the process could possibly be shorter than if changes are made without considering how to cover the changes increase(s) in costs in the draft budget. This in turn would mean a longer period without an approved budget 2012.
The Ministry of Finance has started the 2013 budget cycle. Soon each Ministry will receive a framework document indicating each Ministry’s budget room for 2013. The Ministry of Finance will calculate the expected income level for 2013, the "pie" to be divided amongst the Ministries. Each Minister has the responsibility to budget within the allocated portion of the total budget to each Ministry.
Thank you for your attention