Cft budget advice: civil servants and politicians have to pony up
PHILIPSBURG – St. Maarten has to take more measures to create a budget surplus, the Board financial supervision (Cft) writes in its advice about the 2020 budget to Finance Minister Perry Geerlings. The financial supervisor notes that expenditures are budgeted 16 million guilders too high and that lower pension premium payments for civil servants (around 8 million) are part of the draft budget while the Parliament still has to approve pension reform.
The capital account does not include income from payments on outstanding study loans; the Cft asks Geerlings to adjust the budget on this point. The explanations for intended capital investments are insufficient, reason for the Cft to maintain its reservations about the capital account.
The draft budget projects an increase in tax revenue of 8.2 percent, compared to 2019. A small part – 1.4 percent – is attributed to increased compliance. “The Cft considers that this increase is insufficiently substantiated, though not impossible to realize if the economic recovery continues. The additional revenue from increased compliance is however only possible if the restructuring of the tax department is tackled decisively.”
The 2020 draft budget shows projected revenue of 465 million guilders and projected expenditures of 488.8 million, resulting in a deficit of 23.8 million. Revenue is budgeted 30.1 million higher than in 2019, “based on the best possible estimate of economic recovery.” At the same time the finance ministry admits that “the obsolete and defective tax system limits the ability to conduct proper analysis. The Cft says that this in turn limits the controlability of tax revenue.
The Cft has urged St. Maarten repeatedly to establish a dividend policy for government-owned companies. This is a work in progress, the finance ministry states in the elucidation with the draft budget.
The country expects to collect 26 million guilders in bank license fees in 2020, 11.8 million concession-fees from government-owned companies, 6 million in fees from casinos and lottery companies and 4.9 million in dividends.
The Cft expresses its disappointment with the fact that the parliament still has not approved reform of the pension system for civil servants. This was part of the kingdom instruction from 2015 and had as deadline the end of 2016. The draft budget nevertheless includes lower pension premium payments per January 1, 2020.
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An uncertain factor in personnel expenditures is the financial consequences of the modified labor conditions within the ministry of justice. “The Cft assumes that eventual additional costs will be found within the budgeted expenditures.”
The Cft is furthermore puzzled about issues related to the prison. The budget contains several expenditures for the improvement of detention condition, but the budgeted expenditures for the justice ministry have been lowered “because St. Maarten expects to accommodate inmates that are currently in the Netherlands on the island. This requires however sufficient capacity at the Pointe Blanche prison.”
It is necessary that St. Maarten takes “sturdy and appropriate measures to work towards a budget surplus,” the financial supervisor writes in its advice. However, the country does not expect effects from cost saving measures in 2020, while several other initiatives result in higher expenditures. “The Cft considers cost increases due to policy measures inappropriate without cost saving measures.”
The Cft suggests to collect contributions for healthcare from civil servants and to let “current political office holders” contribute to their pension scheme.
St. Maarten’s debt as a percentage of Gross Domestic Product will increase to 45 percent if the country obtains a loan of 22.5 million guilders for capital investments and if it gets 50 million in liquidity support for 2019. The International Monetary Fund and the Cft consider a debt quote of 40 percent appropriate, whereby the Cft suggests maintaining a bandwidth of 5 percent as a buffer.
The Kingdom Council of Ministers decided in April to extend the instruction it issued in 2015. St. Maarten now has to compensate the deficits it built up between 2010 and 2014 by 2026, payment arrears have to be eliminated by 2024 and measures to keep healthcare and pensions structurally affordable have to be put in place by January 1, 2020.
However, St. Maarten has already postponed healthcare reform until January 1, 2021. “This has been postponed already many times. St. Maarten does not manage to make the steps necessary for the implementation of this reform,” the Cft notes in its advice.
The Cft urges St. Maarten to approve the 2020 budget by December 15. “After the elections a new government can add its vision and policy intentions through a budget amendment.”
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