Published On: Mon, Sep 6th, 2021

Financial situation social security funds is untenable, Cft says

PHILIPSBURG — The financial situation of St. Maarten’s social security funds is untenable, financial supervisor Cft writes in a reaction to the country’s second execution report for the year 2021.

The deficits at the ZV-fund (healthcare insurance), the OV-fund (accident insurance) and the FZOG-fund (healthcare insurance for retired civil servants) increased in 2020 to 291 million guilders (approximately $162.5 million). This is an increase of 21 percent compared to 2019, the Cft points out. The expected total deficit of these funds for 2021 is 328 million guilders ($183.2 million).

“This is an untenable situation that requires immediate and drastic measures. St. Maarten must implement the necessary reforms in the social security system as soon as possible, in order to diminish the deficits of the funds,” the Cft writes.

The execution report shows a budget-deficit of 79 million guilders ($44.1 million) for the first half of the year. This is 36 million guilders lower than budgeted due to lower expenditures (39 million) and lower tax revenue (3 million).

While St. Maarten budgeted 83 million guilders ($46.4 million) for investments in 2021, it just spent 100,000 guilders ($55,865) during the first half year. The Cft advises the government to adjust its investments projections downwards and to only allocate funding for necessary replacement investments and for investments based on the country package.

The financial supervisor expresses its disappointment about the fact that the governor still has not established the 2021 budget. “The way things go now, the government is unable to manage sufficiently, the budget right of the parliament is being hollowed out and it sets a bad example for government-owned companies and subsidized entities.”

The Cft expects to receive the draft 2022 budget shortly to enable St. Maarten to establish it before the deadline of December 15.

Compared to the first half year of 2020, St. Maarten collected 20 million guilders ($11.2 million) less in excise duties, wage taxes and turnover tax. Other revenue shows an incorrect impression, the Cft states.”Due to inadequacies in the administrative organization it is impossible to split revenue into several taxes and revenue from permits.”

Th Cft notes that during the first half year there have been no improvements in tax compliance. In July the financial supervisor suggested using the Audit Team St. Maarten for improvements in this field. The Cft now asks St. Maarten to indicate no later than October 1 whether it wants to use the services of ATS.

The Cft expected lower personnel costs in 2021 because of the 12.5 percent cut in labor conditions. But that did not happen: the payroll-costs did not change at all compared to 2020. The 6 percent cut in vacation allowances has not come through yet, because the government awaits a ruling from the Constitutional Court about the national ordinances that aim to regulate these matters.

The 2021 budget projected 127 million guilders ($70.9 million) in expenditures for corona-related support measures, but during the first half year the government spent only 9 million ($5 million).

Financial management remains a major headache and the Cft sees no progress in this department in the second execution report. The supervisor advises executing parts of the measures contained in the country package as soon as possible.

The Cft labels the backlog in the provision of annual financial reports as “unacceptable.” It still has not received these reports for the years 2017-2020.

The national debt per the end of June 2021 was 1,328 million guilders (close to $742 million) and the debt quote was 75 percent. Payment arrears to government entities amounted to 107 million guilders ($59.8 million) at the end of the second quarter. The largest debts are to SZV (68 million, or $38 million) and to pension fund APS (22 million or $12.3 million). The Cft advises the government to make a payment arrangement with these entities.