Published On: Thu, Oct 31st, 2019

Room for government revenue to grow, Cft chairman says

CFT Sint Maarten - 20191030

PHILIPSBURG – The revenue St. Maarten generates could be much higher “if the increase in tax compliance as a result of restructuring the tax administration is achieved,” Raymond Gradus, the chairman of the Board financial supervision (Cft) said at a press conference earlier this week. “There is room for government revenue to grow, once the highly necessary restructuring efforts have been put into place.”

Gradus said that the country expects 2019 to end with a budget deficit of 40 million guilders, way below the budgeted 71 million.

The Cft-chairman briefly outlined the function and position of his organization because of the public debate about it. The interest rate on outstanding debt and new loans – provided by the Netherlands – is currently zero, while other small Caribbean countries have to borrow against at least 5 percent.

“For most Caribbean countries the interest payments can reach 20 percent or more of the public sector income, but for St. Maarten it is currently around 2 percent. While other countries have to spend public money on interest, St. Maarten can use it to provide better services for the public such as security and education,” Gradus said.

Per the end of August, St. Maarten had around 61 million guilders in liquidity, a position that the Cft expects to deteriorate in the coming months. The country will only receive liquidity support from the Netherlands after meeting several conditions, Gradus pointed out. One condition is a 10 percent decrease in salaries for parliamentarians, the second reform of the pension system for civil servants per January 1, 2020.

The Cft is positive about the recovery of St. Maarten’s economy. “Real economic growth will be above three percent in 2019 and realized tax revenues will be higher than forecast in the budget.”

At the same time the financial supervisor is critical of the progress with cost-saving measures. “Reforms of the civil servant pension scheme and contributions to the healthcare fund by civil servants have not yet been implemented.”

The draft law to increase the retirement age for civil servants from 62 to 65 and to base pension payments on average salary has been at the parliament for already a year, Gradus said. “We urge parliament to pass it.”

The draft 2020 budget shows a 24 million guilders deficit; this projection is based on expected economic growth of close to three percent. “Important in this respect is a full recovery of the airport,” Gradus said. “The finance agreements for the recovery of the airport are not signed yet. The Cft emphasized the importance of the airport’s recovery for the country’s economic prospects.”

St. Maarten will still be struggling with deficit compensation for years to come. It will only be able to begin this process in the fiscal year 2021 – the year when the ministry of finance expects to show a budget-surplus for the first time. “St. Maarten has had deficits since 2010, a result of the misalignment of expenditures to income,” Gradus said.

The government has reached debt settlements for payment arrears with GEBE and TelEm, while a letter of intent has been signed with SZV. Per the end of June the government had 139 million in payment arrears.

Establishing the General Health Insurance per January 1, 2020 is no longer feasible. “But the need for affordable and sustainable healthcare is still there,” Gradus noted. There is only some progress with two issues: the lowered cost of medicine and lower costs for medical referrals abroad due to a decrease in the number of referrals.

According the Cft St. Maarten should raise the maximum income under which people pay healthcare premium.