COHO – change is coming but St. Maarten has to pay for it
PHILIPSBURG – The so-called country package is an integral part of the agreement Prime Minister Jacobs signed on Tuesday with State Secretary Knops about the establishment of COHO – the Caribbean reform and development entity. Among the highlights in this package are the shift from direct to indirect taxes, the introduction of a 12.5 percent Value Added Tax and the increase of the retirement age to 66 in 2025.
None of these measures are written in stone: they all will have to find their basis in existing or still to be executed research. But still, the writing is on the wall: change is coming whether some politicians like it or not.
The kingdom intends to establish the COHO with the well-being of the population in mind. This independent Dutch administrative body will be tasked with promoting that reforms are executed, with the realization of sustainable public finances and building a resilient economy.
The relevant document describes COHO’s task as one for support and supervision. The execution of reforms has to begin before the formal establishment of the COHO. An agenda for the execution of all intended reforms is scheduled to be completed by April 1, 2021.
Among the primary reform targets are a substantial reduction of the costs of the government apparatus, the labor market, the capital market and the business environment. The COHO can “initiate projects, promote and execute them, subsidize citizens and companies and participate in shareholder capital,” the document states.
The objective is to reduce the costs of the government apparatus to the Caribbean average of 10 percent of Gross Domestic Product. In 2018, GDP was $1.185 billion. That would put a cap of $118.5 million on the national budget. But the 2020 budget showed a total of $341 million (in terms of projected costs) and $194 million in projected revenue. These numbers show that cutting down to 10 percent of GDP will require some painful measures and trigger the question whether this objective is realistic.
Part of the cost cutting drive is an investigation into formation, occupation, actual presence and employability of civil servants. Measures range from salary-stops to dismissals. Another objective is to diminish and manage the hiring of external consultants. Furthermore, the cost of accommodation for government services will have to be 20 percent lower within the next five years.
The funding for executing COHO-measures will have to come from St. Maarten’s national budget, though COHO has the option to provide loans, gifts and co-financing if necessary. The reform entity will also assess the government intentions for attracting other loans for capital investments.
Fiscal measures include a shift from direct to indirect taxes. (Income tax is an example of direct tax while excise on fuel, liquor and cigarettes are examples of indirect taxes). The introduction of a 12.5 percent Value Added Tax is also part of the considerations.
Furthermore, the COHO wants to research the social cost of maintaining a local currency (like the Antillean guilder) versus dollarization; it also aims to introduce a deposit guarantee regulation and to strengthen the governance of the Central Bank.
In the field of justice there is some good news: there will be no cost cutting measures for the police, customs, immigration, National Detectives, the Public Prosecutor’s Office, the court, the coast guard, the prison system and the national security agency VDSM.
State Secretary Knops already announced a financial injection of €30 million ($36.6 million) for the construction of a new prison and for the improvement of the detention system.
Another intention is to reform the gambling industry in such a way that it increases government revenue.
On June 15, 2021 the latest the government will have to appoint an independent organization tasked with controlling the Crime Fund. St. Maarten has agreed to abide by the recommendations from the Law Enforcement Council for managing and supervising this fund.
In April 2019, the Law Enforcement Council published a report about the Crime Fund. One of its recommendations at the time was to establish a national ordinance containing rules and guarantees to prevent improper use and abuse of the fund. Between 2016 and 2018 the fund paid out almost 2.5 million guilders for at times questionable or simply unjustified purposes, but the amount granted to a flurry of recipients was much higher.
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