CASTRIES: Prime Minister Dr. Kenny Anthony presented an EC$1.25 billion (one EC dollar=US$0.37 cents) budget to Parliament last week, confident that the fiscal package in which he announced a series of new tax measures would lay the foundation for a country that will achieve future economic growth.
Dr. Anthony said that EC$925.7 million would be used for recurrent expenditure while EC$326.3 million would account for the capital expenditure.
He said the budget would be financed through recurrent revenue of EC$868.49 million, of which tax revenue is projected to be EC$799.57 million and non-tax revenue of EC$68.9 million.
“This budget lays the foundation for our youth to inherit a country that is more economically stable; a country that will achieve growth; that will create new jobs; a country that will promote their aspirations, the expression of their minds and souls,” he said.
Anthony told legislators that his administration will yield to popular demand and zero-rate value added tax on prescription medication.
He said this would not include vitamins, tonics, energy drinks, food supplements and similar products ostensibly for promoting health and well-being.
“However, consumers should understand that this reprieve is short-lived because, come the end of the four-year cycle on April 30, 2016, duty will return on imported prescription medication in accordance with the Common External Tariff,” said Anthony. “The removal of VAT on prescription medication means that the government will lose EC$2.8 million in revenue.”
Anthony said that the government had agreed to keep in place a VAT exempt list so as to assist the “the poor and indigent”.
The government said it was also reducing corporate tax to allow businesses to have additional funds for further investment.
“It is envisaged that such a move will make St. Lucia more attractive as a place to do business and thus will result in increased foreign direct investment,” said Anthony, noting that St. Lucia’s current rate of 30 per cent tax is higher than that of its counterparts in Barbados, Jamaica, and Trinidad & Tobago.
“I propose to reduce the corporate tax rate to 25 per cent but on a phased basis over a two year period. I propose a reduction to 28 per cent in this fiscal year and the further reduction to 25 per cent in the next fiscal year,” he said.
Anthony also announced that effective January 1, 2015, more than 2,000 people would be exempted from income tax and approximately 9,443 others will pay less income tax.
In his presentation, Anthony, who has warned of the need to reduce the fiscal deficit that stood at EC$2.6 billion at the end of last year, recalled that wages and salaries in the public service represent a significant share of annual expenses, accounting for 48 per cent of recurrent expenditure.
“This represents 13 per cent of our GDP (gross domestic product), and is well above the ECCB (East Caribbean Central Bank) prudential target of nine to 10 percent of GDP,” he said.
Anthony said this issue can no longer be ignored and that any successful attempts to reduce recurrent expenditure must target the wage bill. He said his administration recognizes the sensitivity of the issue and has explored several options.
“Our government has repeatedly made a point that we want to preserve employment. Therefore, we do not want to go the route of Barbados with the retrenchment of public servants. We do not want to send any public officers home.
“However, to do that, to keep the current level of employment in the public service, some sacrifices must be endured by all public officers. While some propose that we keep wages constant at their current levels, this is no longer sufficient. It does not solve the serious problem that we are facing. The current wage levels are too high and the burden of meeting these payments too heavy,” he said.
Anthony said the only solution available was to seek a reduction in current wages and salaries.
“We simply have to reduce our recurrent deficit,” he said. “We cannot continue to borrow to meet the cost of recurrent expenditure. The government has invited the unions to indicate its suggestions to reduce expenditure. The government’s preferred approach is dialogue, discussion and consensus. However, should it be impossible to arrive at consensus then the government will have to act in the best interest of the country.”