The VAT deferral system has been welcomed by manufacturers, and the necessary amendments to the VAT Act are due to be announced shortly. The IBC Act has already been amended in April 2017 (IBC Act (Amendment) No. 3 of 2017) to allow regional and international companies to take advantage of these incentives, and some applications have already been made by companies wishing to establish headquarters in Saint Lucia. The only new Revenue measure announced in the Budget is the increased Excise Tax on Fuel, from $2.50 to $4.00 a gallon, which went into effect on June 1, 2017. The increase in revenue is designed to go towards maintaining and upgrading the road network and associated infrastructure such as bridges. The impact will be felt by all drivers, and may become an issue if the international price of oil increases, resulting in higher gas prices locally under the Modified Pass Through Mechanism for setting prices at the pump. This new tax is expected to yield about $25 million per year. It will be interesting to find out if drivers buy gas “by the amount” or whether taxi and bus drivers will seek increases in their regulated fares. Other revenue measures previously announced for the 2017/18 year include an increase in the departure tax from US$25 to $63 effective June 2017, and a further increase to US$98 effective January 1, 2018. The rates for trips to other CARICOM countries and the French Overseas territories will increase from US$25 to $35. The proposed personal tax reforms are somewhat similar with reforms included in the Budget address of 2016, but never enacted due to fears of tax revenue erosion. Under the proposals discussed broadly in the Budget, both the personal allowance and the applicable deductions would be reformed with a view to simplifying the system while simultaneously making it more progressive. It is also the intention of the Government to place a cap on personal income tax. Details of these reforms will be announced prior to their implementation. There were many new Expenditure Measures announced that are designed to reduce Public Debt by reducing or eliminating transfers to specified Boards and Agencies of Government. This
could result in the winding up of the Saint Lucia Marketing Board and the Saint Lucia Fish Marketing Corporation and Radio Saint Lucia, as well as reductions in the subsidies on bulk rice, flour and sugar provided through the operations of the Supply Warehouse. Other measures include the reduction in the annual subvention to the Saint Lucia National Trust and proposals to privatise the Saint Lucia Postal Service. In most instances, the expenditure savings were not quantified, but the justification given was the reduction in current expenditure and public debt. RISKS AND UNCERTAINTIES There are risks and uncertainties with all Government Budgets, and it is becoming increasingly difficult to make economic projections due to the volatility and unpredictability of markets and geopolitical developments. The best laid plans of men and mice oft go awry. There are many systemic as well as specific risks associated with the 2017/2018 Budget which could delay or hinder the completion of some of the planned programs and strategies. These include: The increase in public debt. The policy of aggressively increasing public debt to finance capital expenditure to grow the economy, without compensating tax increases, could increase the public debt to unsustainable levels. The projected increase in financing, less principal repayment of existing debt, would increase Public Debt to $3.2 billion or 68% of projected GDP. With higher interest rates on new borrowings, this would place an unsustainable future burden for the servicing of Public Debt. The implementation deficit. It is generally accepted that Saint Lucia has a problem with the timeliness and completion of capital expenditure. The completion percentage was 66% in 2016/17 and has been traditionally low in prior years. This has been due to capacity constraints in the applicable Ministries, the inability to obtain financing for capital expenditure, issues with the quality of certain projects and inefficient implementation.
Proposed Sandals La Source St. Lucia at Pigeon Point
The Prime Minister alluded to this “implementation deficit” in his address, but promised reforms that would facilitate the efficient execution of programs. It is unlikely that any such reforms would have an immediate impact, casting doubt of Governments ability to undertake capital expenditure of $362.1 million in the 2017/18 financial year. The inability to undertake planned capital expenditure will have an adverse impact on growth and employment. The timeliness of new private sector investments. Many of the new private
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