It’s Time For Change.
In my days at primary school, I was introduced to the word – tautology. The word has stuck with me ever since. The word is defined in the Oxford Dictionary as – ‘saying the same thing twice over in different words’. I am leaning to accept that we have a phenomenon called ‘budgetary tautology’ in Saint Lucia. If you were to read the Budget Addresses over the last 20 years, you will be surprised to see the series of repetitions contained in these presentations.
This phenomenon speaks to the disjointed way we have pursued development and the need for a coherent and comprehensive approach going forward. We have been developing our country in ‘silos of budgetary cycles’, with one budget not being linked to the other. So you would hear the Minister of Finance speak of the plans of a Ministry in a Budget Address in one year and the objectives were not achieved in that year and then the following year, the same Ministry abandons these plans that were never implemented and pursues a different policy.
If we were to say that all the policy objectives in the last twenty Budget Addresses would be collated and then reviewed to determine present relevance, we would have an excellent Policy Document to chart our future. There are some excellent ideas that were just lost in the silos of budgetary cycles.
I decided to go back ten years to the Budget Address of 2004/5 and test the hypothesis. Dr. Kenny D. Anthony was Minister of Finance. The following are the policy objectives as outline in that Budget address.
The hosting of the World Cup was of primary concern, and the objective was to move the number of hotel beds on the island from 4,500 to 7,500, an increase of 3000 or close to 66%. A special package of incentives was approved, which were very similar to the recent Tourism Incentive and Stimulus Act. A Tourism Fact Sheet developed by Invest St Lucia shows that in 2013, the number of rooms in St Lucia stood at 4,303.
It means that there has been no growth in the number of rooms in the last 10 years. Of greater significance to the tourism Industry, is the fact that every hotel development started in the last 10 years has failed, a most startling statistic. It means that the Ministry of Tourism, Invest St Lucia and the St Lucia Tourist Board must begin to look at the reasons for the preponderance of failed projects in the tourism sector in St Lucia. Not only are we having failures during the construction phase, but the failures continue during operations. In that 10 year period we have seen the collapse of Almond Morgan Bay, Almond Smuggler’s Cove, Cotton Bay, Rainbow, Caribbes, Landings, Discovery, fortunately for us we were able to attract new owners for most of these hotels.
In the health sector, there was the announcement of the introduction of the Universal Health Care. The government was advised by the Task Force that it would cost $ 5.2 million to set up the Universal Health Care system. It was announced in that 2004-2005 budget that a loan was approved in principle to meet the start up cost of the UHC system. Ten years on the UHC is as relevant to the health sector.
The Budget Address of 2004 -2005 spoke to the establishment of a Forensic Laboratory. The building was constructed; however it appears that the organizational structure is still not in place. On national security, the budget spoke about a sum of $ 800,000 for the procurement of the following:
• Stun Guns for the Police in apprehending criminals and less dangerous suspects
• Breathalyzers for measuring alcohol levels
Both are good ideas, however I am unware of the use of stun guns and breathalyzers within the Police Force.
There was also mention of the establishment of a Criminal Division of the High Court. The intention was to end the system of periodic assizes and to establish the Criminal Division of the High Court to provide year-round hearing of criminal cases by the High Court. An excellent idea, that is still in hibernation.
On the prospects for reducing unemployment the following was posited;
1. Assigning priority to the reopening of the major hotels
2. Accelerating investment in public sector construction
3. Deepening investment in Tourism
4. Pursuing investment in the Information technology sector
5. Increasing opportunities for self employment by liberalizing access to credit.
The entire above are still relevant in 2015.
We cannot continue in this cycle and thus we have to move to Performance Based Budgeting. With PBB we begin to focus on accountability. The following are some of the known advantages:
A performance budget has the following characteristics:
• It presents the major purpose for which funds are allocated and sets measurable objectives.
• It tends to focus on changes in funding rather than on the base (the amount appropriated for the previous budget cycle).
• It identifies programmes and government departments that are seeking similar outcomes, thereby drawing such inter-relationships to the legislature’s attention.
• It offers government departments the flexibility to reallocate money when conditions merit, rewarding achievement and possibly imposing sanctions for poor performance.
It is time for change in our budgets.
St Lucia lost one of its foremost architects in Claude Guillaume this week. I have known Claude for over 20 years, having worked with him on several projects. We last spoke when he called from his sick bed in the USA inquiring about the status of a project that we were working on together, such is the commitment and professionalism of the man. Claude, I salute your work, your professionalism, your wonderful geniality. I am sure you are now enjoying the discourses in heaven on architecture, with your maker.
Well done Eng. Peters and just in case The Stooges want to doubt: let the facts speak for it self…Keep giving ’em hell.
REVIEW OF THE 2012-2013 BUDGET – THE CONSTRUCTION SECTOR
It is instructive to situate the Budget Address of 2012-2013 in the micro and macro- economic space that St. Lucia is placed at this time. In an effort to do this we have to draw from the statistics that were stated by the Honourable Minister of Finance.
On the issue of debt the following were stated:
a. Debt to GDP ratio stands at 68.9 %
b. Present Debt – $ 2.27 billion XCD
c. Borrowing from 2006 – 2011 – $ 1.0 billion
d. 23 % of Recurrent expenditure relates to debt servicing
e. $ 430 million is required to fund the capital and recurrent expenditure this financial year
On the issue of unemployment:
a. At the end of 2011 unemployment was at 21.2%
b. Total of 19,000 persons unemployed
c. 7,200 youths or 34% of unemployed numbers
On the issue of Recurrent Expenditure
a. 48% of recurrent expenditure goes to Wages and salaries
b. Wages and salaries have increased by 37% over the last 5 yrs
Government has targeted a growth rate of 2.5% for the economy which they are hoping will be mainly driven by the construction sector. The Government has selected the Construction sector to drive the economy. They see this sector as having the greatest potential to stimulate the economy, reduce unemployment and enhance growth prospects.
It is against this background that it is important that the measures that are proposed in the Budget Address are realistic expectations. The presentation given today thus reviews these measures and provides commentary and recommendations for the consideration of the Government of St. Lucia.
The Minister of Finance has conceded that Government cannot be the vehicle for creating the stimulus, and thus the policy is not based on Keynesian economics but discretionary fiscal policy. Government will not be increasing borrowing to stimulate the economy.
It is a tax policy based on reducing the cost of some basic materials coupled with engagement of the Banking sector to reduce the cost of borrowing, with the hope that these combined measures will generate a high level of interest in the private sector.
The Minister of Finance has cited the experience of World Cup 2007, when incentives were given for Bed and Breakfast accommodation expansion, hotel and restaurant expansion. The incentives given in that period were far more generous that what is stated in the 2012 -2013 Budget.
If one were to review the Budget Addresses of the period 2004 to 2006 you would observe the following generous incentives given;
• Institutions that finance hotel construction will be exempted a percentage of the quantum of their investment for tax purposes.
• A relief on the normally sacrosanct Property Tax, Vendor’s Tax and Alien • Landholding License
• An increase in the Tax Holiday to twenty (20) years
• The fast-tracking of the permitting process from ground-breaking to construction
• An investment tax credit equivalent to a percentage of the initial capital expenditure
(1) 100% waiver of Duty and Consumption Tax on materials and fittings imported or
bought locally for the expansion or renovation of the property;
(2) An Income Tax Holiday of five (5) years on the income earned from renting the
(3) A 50% reduction in Property Tax for a period of five (5) years in respect of the
property or the entire property of which the addition or expanded property forms a
(4) A percentage tax credit for financial institutions providing finance for the
accommodation based on the quantum of investment as follows:
(a) EC$300,000.00 and under – 1%.
(b) Over EC$300,000 and up to E.C$ 600,000 – 2%.
(c) Over EC$600,000 – 3%.
The major construction activity in that period was driven primarily by the tourism sector, with the following projects started in that period:
• Discovery –Marigot
• Le Paradis
• Zara Villas
• Cotton Bay resorts
• Cap Maison
• Almond Morgan Bay
• Coconut Bay expansion
• Villas in the Green
• Bay Gardens
• Coco Resorts
• Beau Estates
• Anse Chastenet
This massive investment in the Tourism sector in St. Lucia in that period generated the significant growth in the economy; the Bed and Breakfast initiative was a minor contributor.
CONSTRUCTION STIMULUS PACKAGE
Reduction in the cost of materials by removal of duty and taxes
The Construction Stimulus Package contains the following measures to reduce the cost of construction materials:
a. Removal of duties and taxes on sand, cement, lumber including plywood, steel bars, steel rods and paints.
Let us look closely at the effect of these measures. The following are the reductions due to the removal of duties and taxes:
Imported sand – ——— 16.5%
Lumber ——————– 16.5%
Plywood ——————– 16%
Steel reinforcement—— 21%
Paints ——————— – 36.5%
It must be noted that Aggregates and concrete are not included and thus will attract the 15% VAT. So the increases in the construction materials due to VAT especially the high cost items like windows, tiles, roofing materials, plumbing and electrical will net out any savings due to the removal of duties and taxes on the selected materials. The other matter that has to be observed when the measures are implemented will be how much of these cost reductions will go back to the consumer.
CONCLUSION: The proposed measures to remove duties and taxes will have minimal to no effect on the overall prices of materials for a building in a VAT environment.
Reduction in Interest Rates
The other measure that has been proposed and to which there has been some agreement with Bank of St. Lucia relates to reduced rates of interest on loans for new construction. The policy as outlined in the Budget Address states that the BOSL has agreed to reduce rates to 5 % for 5 years with rates returning to market rates in Year 6. Will this measure allow a greater pool available to qualify for mortgages and will the business sector see this as a windfall to capture. One is doubtful that the Bank will proceed with a “sub-prime’’ mentality where loans are given to persons who will not be able to service the higher mortgage payment in Year 6. It is not envisaged that there will be an increased pool of persons qualifying for mortgages based on the reduced interest rates.
Removal of 0.25% Stamp Duty on Mortgages
This is a small saving measure, on a $ 300,000 loan that equates to $ 750.00 XCD for Stamp duty.
National Housing Corporation to provide Service Lots with land loans through the SLDB
The provision of service lots is thus the critical determinant in the facilitation of the construction stimulus package. The Infrastructure has to be completed before the houses are built. Given the historical performance of the National Housing Corporation over the last five years, such performance does not inspire confidence that there can be a ramping up of the delivery of service lots. Even with the best will in the world, the processes from conception to completion will put the 18 month window as being restrictive.
The NHC will have to acquire land, do the surveys for the design, send the drawings for planning approval, which may take 6 months, then begin construction for completion and handover within one year, undoubtedly a daunting task. There is a time-lag and thus demand will not respond quickly to the tax changes in the cost of materials.
PROJECTS CANCELLED OR STOPPED
Two major projects were stopped or cancelled, these were:
a. Bois D’Orange Hypermart which the Minister of Finance indicated will be sold
b. Hewannorra Airport Development which has been placed on hold pending a revision of the project
Bois D’Orange Hypermart
The Gov’t looked at three options in their decision making process:
• Complete the project as originally planned
• Engage in a joint venture – private /public sector project
• Abandon the project
Of note was the omission of the option of reducing the scope of work on the project. Of particular concern would be the attractiveness of the building to an investor in the present market.
Hewanorra Airport Development
A decision was taken to terminate all discussions, negotiations with the consortium initially selected to build the project. The Minister of Finance stated that SLASPA never obtained financing for the project. The Board of SLASPA has therefore agreed to the following:
• suspend the imposition of the tax until the project is restated
• Review the original concept to create a more cost effective project
• Engage the International Finance Corporation to undertake an evaluation of the project and advise on the best model for financing the project
Use of State Lands to mobilize economic activity.
The Minister of Finance lamented the poor utilization of state assets to create economic activity within St. Lucia. The lack of transparency in the sale of Government assets and the historical abuse were also of concern. This is an area that was to be given attention.
POST TOMAS REHABILITATION
There will be a ramping up of the implementation of the projects related to the POST – Tomas Reconstruction.
Tax concessions to encourage the use of rainwater harvesting will be in place from July 2012. It is hoped that rain water will be used by home and businesses and thus make better use of our water resources.
WASCO will begin to look at the development of Vieux Fort Water Supply Redevelopment with the intent of improving the intakes, the treatment capacity and upgrading the distribution system.
Work will also be done to the Vanard intake through a grant from the Japanese Gov’t, and design work on the water supply for the Mabouya Valley will also begin in this financial year.
PUBLIC SECTOR INVESTMENT PROGRAMME
The major projects for this financial year also include the construction of schools under a CDB funded programme. In the Health sector there are the completion of the St.Jude’s Hospital and the New National Hospital.
MAJOR CONCLUSION ON CONSTRUCTION STIMULUS
• The proposed concessions on selected materials are outweighed by the VAT increases on the other major construction materials. It is projected that there will be a net increase in the cost of construction due to the introduction of VAT in September 2012.
• The proposed reduction in interest rate while it will be attractive to some in the higher income bracket, is not projected to increase the pool of potential home owners.
• The time lag from the design, DCA approval to approval of the loan will consume a considerable amount of the time line of 18 months for the concession. The full benefit of any concessions will not be realized, as the first few months will only benefit existing construction.
• The contribution of the National Housing Corporation to provide the affordable land to receive the new houses will not be achieved due to the process of design, approval and construction. There will also be a need for significant organizational change within the NHC for the proposed ramping up of activity.
• The removal of the 0.25% stamp duty is a negligible saving
• The High end home construction has not been targeted
MAJOR CONCLUSIONS ON POSTPONED/CANCELLED PROJECTS
• Gov’t may have to reconsider an alternative scaled down project for the Bois D’Orange Hypermart with a Joint Venture approach as against a sale that may generate a significant loss to the Gov’t
• The Hewnanorra Airport Development project should be reconfigured and restarted towards the end of this year as a series of sub-projects and thus allow fuller engagement of the local construction sector. The Technical Building should be constructed with the available funds collected.
• Gov’t should allow the crown lands and property assets to create the stimulus to the economy, in Joint Venture with the NIS to invest in St. Lucia.
1. Introduction of a Flat Tax of 10% on all construction materials for the 18 month period, with an implementation date set at November 2012 to allow for the time lag.
2. Engage discussions with the NIC to enter into Joint venture partnerships with Government placing the state lands as their equity contribution. These are short term investments for the NIC with higher returns that what they obtain on the international market at present.
3. Reconsideration of the proposed sale of the Bois D’Orange Hypermart and an opportunity to determine the possibility of a Joint Venture partnership where the project is scaled down, and the Government agrees to be the anchor tenant and the Private Sector entity take on the cost to complete the project.
4. Accelerate the design phase of the reconfigured Hewanorra Development Project to allow a start by March 2013.
5. The creation of a new special purpose company to implement the Public Sector Investment Programme. This new company will be the project managers of the capital works programme of the GOSL.
6. The contribution of the high –end home construction should be pursued. Amendment of the Aliens Land Holding Act should be pursued to be brought in line with what exists in the Bahamas’s International Persons Landholding Act which removes the requirement of a license for single family homes. The St Lucia Tourist Board also playing a part as marketing St. Lucia as “the best place to have a second home”.
If memory serves a PBB was supposed to been implemented eons ago. What is needed is a 3-year budget cycle. Annual budgets are something of a farce in countries like ours. It’s not possible for any meaningful progress to be made in one year especially when a budget is passed in May just 2 months before the start of the school vacation when most civil servants go on holiday and the start of the wet/hurricane season and just 6 months to the start of the Christmas season when productivity is at its lowest.
A 3 year cycle would allow sufficient time for the project cycle to run a decent course and for money to be raised for project implementation.
The current 2-stage budget debate should be scrapped as it’s a colossal waste of time and money.
excellent article and posts. It comes down to priorities. The people and politicians are as bad as each other. The latter comes from the former, so everyone gets what they deserve.
1. Maintaining law and order
2. Maintaining water supply
3. Maintaining food supply
5. Health care
These are the main priorities of people because these things are essential. Are you honestly happy with any of these when you look at a debt the country has accumulated?
When you look at what the government sticks its nose into, you would realise how much waste there actually is. If all the foreign money st lucia had received was chanelled into these areas, along with local taxes you still wouldn’t necessarily have enough to cover it. No wonder the debt ratios are spiralling out of control. Too many vested interests stop the money being spent where it is needed, allied with poor government control in how projects are completed. Too many one off projects without any thought of long term maintenance of those assets. Every ‘new’ item the government does, like a stadium, bridge, forensic lab, or road – no thought is ever put into its maintenance. The people are generally ignorant enough not to consider these boring details. As far as they are concerned, it was built so why it not working? People have been saying for a long time the dam is in trouble, but do people modify their behaviour? No, they carry on wasting water like they have always done.
I actually think if both parties could agree on ensuring 100% approval PRIOR to starting projects in 4/5 areas, that would result in a complete change in the welfare of the nation. You can’t simply have each party ripping up plans every 4 years and coming up with their own. Everyone needs to have the same understanding and commitment to a project and ensure it is is completed, regardless of who is in power. Both parties signed it, so they can both take the credit or blame if it goes wrong.
The fundamental reason behind the concatenation of serially disjointed budget presentations and statement is simple: THERE IS NO VISION. No national vision, that is.
Those budgets, rather than instruments of real national planning, financial control and political accountability are merely statements of symbolic manipulation of an unsuspecting populace. The PROGRAMMES and PROJECTS are designed to finish or create illusions of progress just in time to coincide with the calling of the next general election.
Take for instance the paving of the roadways in Vieux Fort. Not that resurfacing may not be absolutely necessary in some parts, but the objective was to finish just about election time in 2016. The paving has no significant economic impact on national production nor has a very significant multiplier on GDP
Had there been a NATIONAL VISION, our annual budgets would build on one another, thematically. One would link with the other to further some long-term national goal. A Minister of Finance who was aware of where s/he was taking the country would be too happy to show how last year’s and previous years’ budgets are helping us get to some desirable national goal.
It is noteworthy that it was not until the LPM group came on the political scene that its criticism of SLP’s budgets as characteristically NOT having a theme, that subsequent speeches made a point of pointing out a theme for SLP budget presentations. But these writers fell into the trap of not being able to thread one budget into another. Which is what Mr. Peter’s is pointing to here. Why is this so? There has been no overarching national goal with a quantitative and time-bound focus.
Here is the crux of the problem: episodic budgetary creations aimed solely at symbolic manipulation just to win the next elections are just that. The only common obvious links are the speech makers, and that the year of presentation in question may have the en rouge sameness and commonality of the first two digits representing that year, it being identically the same as the previous year.
The Holy Book says this. ‘Where there is no vision, the people perish.”