Post-Irma financial predicament

By Hilbert Haar

The St. Maarten Hospitality and Trade Association has put its finger on a very sore spot with its analysis of the country’s post-Irma financial predicament. That we are – financially speaking – down in the gutter is nobody’s fault one could argue, but the SHTA-analysis contains one crucial clue that shows that the government was heading the wrong way already before the hurricane changed everything.

That clue is this one: while gross domestic product (GDP) increased over the past years at best with a measly 1 percent, the government’s budget increased by 5 percent. That disparity obviously cannot continue till kingdom comes. The situation feels a bit like the credit card crisis in America,

According to nerdwallet.com cost outpaced income in the States over the past decades: medical cost went up 34 percent, food became 22 percent more expensive but the average income increased only by 20 percent. The total credit card debt of American households was $905 billion in 2017; the average annual interest burden was $904 – money those households cannot spend on necessities.

St. Maarten is heading for a similar situation, if we follow the SHTA’s analysis. A collapsed private sector results in lower government revenue.’

The private sector reaction to crumbling turnover is simple: businesses fire people or they shut down.

The SHTA correctly notes that now is the time for the government to look at the size of its organization versus the size of the private sector. That makes sense: a flourishing private sector funds the government through turnover tax, income tax and profit tax. When the private sector is in trouble, so is the government.

The SHTA therefore stresses the need to reduce government spending. But how do you do that? Switching off the lights at the government building at night – as Finance Minister Mike Ferrier once suggested – helps but it will not make the difference.

Two possible solutions come to mind that would address the SHTA’s concerns – and none of them are pretty.

The most rigorous step would be to reduce the size of the government organization by firing, say, 20 percent of the civil servants. That all hell would break loose if the government ever presented such a plan is obvious. It is socially unacceptable.

The other option is a salary cut across the board. That’s also not a popular measure, but it would spread the pain equally over all those who are currently living off tax payers money.

Of course, the legislative and executive branch of government should set the example by bringing down their own royal remunerations. We have seen however in the past that members of parliament prefer an early death over giving up even 5 percent of their income.

But tough times demand tough measures and if the government does not act one way or the other the country will find itself in deep doo-doo somewhere down the  road.

Remember, the country’s borrowing capacity is limited. The interest burden on loans is not allowed to exceed 5 percent of the country’s average revenue over the past three years. Because revenue has collapsed due to Irma,  that interest ceiling will rapidly come closer. And once we are there, there will be no more borrowing for necessary investments in the development of the country.

It makes therefore sense to take a good hard look at the SHTA analysis and to come up rapidly with a plan that addresses our most pressing concerns.

Click here to download the Post-Irma statistical analysis by the SHTA…