St Lucia budget aims at reducing subsidies on basic food commodities
CASTRIES, St. Lucia, Thursday May 16, 2013 – The St. Lucia government has presented an EC$1.32 billion (One EC dollar = US$0.37 cents) budget to Parliament late Tuesday reducing the subsidies on basic food commodities such as rice and flour and increasing the Value Added Tax (VAT) for the hotel industry.
Prime Minister Dr. Kenny Anthony told legislators that the budget, which he described as “realistic” and meeting the socio-economic challenges of the country “head on”, represents a nine per cent reduction in expenditure over the 2012-13 fiscal year.
Anthony, who is also the Finance Minister, said of the total budget outlay, EC$947.08 million represents the Recurrent Expenditure component and accounts for 71 per cent of total expenditure whereas Capital Expenditure totals EC$380.3 million and represents the remaining 29 per cent of total expenditure.
He said taxes will account for EC$765.6 million of the recurrent revenue estimated at EC$839.9 million while grants from Taiwan, the European Union and the Caribbean Development Bank (CDB) accounts for EC$137.9 million of the capital revenue.
Anthony told legislators that the government had reviewed the eight per cent VAT for the hotel sector and related services and to a proposal by hoteliers for the establishment of a Tourism Marketing and Production Development Fund.
He said this fund would to assist in financing the marketing activities for the tourism sector and would entail a statutory contribution of US $2.00 per room night.
The fund would be managed by a joint public-private sector board and its priorities would include “minimum revenue guarantees, airlift support, marketing or other related tourism activities.
Anthony said the fund would be reviewed after one year but the government believes that this is a step in the right direction.
“Using last year’s figure of 2.2 million bed nights, the Ministry of Finance estimates that the fund may yield in the vicinity of EC$11.9 million per year, once all hotels duly meet their contributions.
“Taking into consideration the contribution of the proposed fund to marketing the island, and after due consideration to the possible options, the government has decided to contain its adjustment to the rate for hotel accommodation by increasing the VAT rate on hotel accommodation by 1.5 per cent to 9.5 per cent, while the rate of 15 per cent would apply on other related services including tours, food and beverages,” Anthony said, pledging to continue to dialogue and would to be amenable to revisit the VAT rate.
The government also announced that its intends to grant a further concession to residential property owners by doubling the threshold from EC$100,000 allowing for home owners who are eligible to pay property tax to now deduct the new figure from their assessed property value.
“This will remove a further 3,196 residential property owners from the property tax net bringing the total number of exempted persons to 12,160. With this further concession, we are hoping to increase the compliance rate given the expected reduction in property tax liability,” Anthony said, adding that the new measure goes into effect from January 1 next year. Click here to receive free news bulletins via email from Caribbean360. (View sample)
The government also announced a new initiative to raise revenue, indicating that personalised number plates would be introduced here.
“These may take the form of three or four digit numbers without letters, or special combinations of numbers, or even numbers which are reminiscent of people’s birthdates,” Anthony said, adding that the government is therefore proposing two measures which would realise some increased revenue collected by the Licensing Department.
“First, we propose that persons desirous of reserving vehicle license numbers but which are currently assigned to any vehicle which has not been reinsured in over 12 months must seek a special reservation of the license number. A reservation fee of EC$300.00 is proposed.
“Secondly, the government proposes to introduce the option of personalised number plates. These “customised” or “vanity plates”, as they are called in the United States, are generally regarded as luxury items,” Anthony said, adding that these personalised license plated will be issued for a one time fee of EC$2000.00.
But Prime Minister Anthony said that as his administration moves to reduce the current 71 per cent debt to gross domestic product (GDP), it will move to reduce its non-wage expenditure.
He spoke of plans to reduce expenditure on goods and services such as travel, professional consultancies among others.
Anthony said the government is also reviewing the level of subsidies, noting in most instances,” we provide blanket subsidies on a number of commodities at great cost to the tax payers, while the benefits of such subsidies are not entirely certain.
The prime minister said that since 1970, government has been the sole importer of bulk rice, flour and sugar and that these items have remained under fixed price control regime.
“While international commodity prices have increased sharply over the past years, the wholesale and retail prices have remained unchanged,” Anthony said, adding that the “prices at which these commodities are sold on the domestic market have not been adjusted in almost 30 years”.
“While the import costs of these items have escalated, the price at which they are sold to the public have not been adjusted and government continues to absorb the full effects of these increases by providing these items at a subsidised rate to every company, business, or individual in the country.”
Anthony said that the level of subsidies has increased every year over the last five years and reached EC$18.2 last year with a further increase projected for 2013-14 if left unchanged.
“Not only does Government have to directly subsidise the cost of the commodities but also absorb the rising cost of operating the supply warehouse where these items are stored,” he said, adding that in order to address the situation, his administration is proposing ...to eliminate the subsidy on white sugar in its entirety.
“We do so, not only for health reasons but more importantly, because white sugar is not consumed by the majority of our people. Secondly, we will effect a reduction of 50 per cent in subsidies on bulk rice, flour and brown sugar with effect from June 1, 2013,” resulting in an EC$10.5 million reduction on government’s expenditure on subsidies for these commodities. (CMC) Click here to receive free news bulletins via email from Caribbean360. (View sample)