Advisory Council criticizes 2012 draft budget: Lack of explanations and no target dates

POSTED: 02/13/12 7:44 PM

St. Maarten – “The 2012 draft budget lacks for all ministries a guiding elaboration about the intended policy, adjusted for the current revenue and expenditures. The intended goals are described much too vague and leave room for interpretation. Nowhere does the draft mention the moment when a goal must have been achieved.”

The Advisory Council writes this in its advice dated January 30 to Governor drs. Eugene Holiday. The council was highly critical of the financial-economic premises, the projected extra revenue from real estate, succession and car rental taxes and the fact that the budget does not contain a provision for the costs of St. Maarten’s member of the Council of State, Dennis Richardson.

Finance Minister Hiro Shigemoto reacted in writing to the 8-page advice with an undated memo to the governor that runs just two-and a-half pages.

Advisory council vice chair Mavis Brooks-Salmon advises the finance ministry to put forth in the budget’s explanatory notes per item “how each budgeted amount is compiled, for what purpose it will be spent and to pose clear policy targets in this context, and within which term these targets will be met.”

The council puts question marks behind the estimated extra tax revenue from the real estate branch. “The council wonders whether this is much too high because a lot of work still has to be done before it is possible to collect this income tax.”

In his reaction, Minister Shigemoto wrote that this issue has been explained to the financial supervisor Cft in a letter dated December 20 of last year, and that there is an extensive plan of approach that contains “measurable products and time schedules.”

The council advised the finance ministry to investigate the number of legal entities based on local law and the number of foreign offshore companies that also own or manage real estate. “The council is of the opinion that this group ought to be taxed the same way foreign private citizens are taxed.”

The council furthermore warns against “too high expectations” of extra revenue from succession taxes. “Many appeals against these assessments can be expected.”

Minister Shigemoto’s reaction is that he is aware of this and that this is the reason he asked for extra assistance for the tax inspectorate to handle appeals as quickly as possible.

The council also doubt whether it is realistic to project extra revenue from car rental taxes. “Taking the global economic developments into account it can be expected that car rental companies are going to reduce their fleets because of the economic downturn and the announced stricter tax controls.”

Minister Shigemoto disagreed with this point: “There is no proof for this until now. On the contrary, in December more cars were imported. Controls on car rental companies will increase. The principle is that everybody is going to pay his share.”

Whether the 1.5 percent interest rate the finance ministry uses in the budget is sustainable depends on St. Maarten’s credit rating, the council points out in its advice. Shigemoto pointed out in his reaction that this interest percentage applies to a 26 million guilder 5-year loan and that the rating does not affect this percentage.

Apart from remarks about these financial-economic premises, the council also had quite some things to say about the budget’s legal aspects.

The first point is that the budget was submitted too late – a tradition in St. Maarten. The multi-year budget contains only a summarily elaboration on revenue and expenditures. It is for instance unclear why the 2012 budget reports 37.3 million in outstanding loans, while this is 50 million for the two consecutive years, and 42 million for 2015. “These global figures without any elaboration do not meet the legal standards,” the council wrote.

Minister Shigemoto admitted in his reaction that the explanatory notes with the multi-year budget are too limited. “The estimated annual investments of 50 million guilders will have to be financed mainly via bond loans. In the budget process for 2013 each ministry will be asked to specify the necessary capital investments for the next five years.”

But the most extensive criticism is the lack of explanation about items in the budget. It is unclear to the council how certain budget-items came about and what the basis is for increases and decreases. One of these items has to do with the Ministry of Public Housing, Urban Planning and Environment (Vromi), where  the expenditures for salaries and social premiums is projected to go up by an whopping 18.6 percent compared to 2011.

There is also no explanation for significant changes in the subsidies for the Common Court of Justice, the Coast Guard and the St. Maarten Carnival Development Foundation.

Remarkably, the finance ministry projects less revenue from transfer tax, while the budget states “that revenue from transfer tax has increased sharply over the past couple of years due to a strong increase in activities in the real estate sector.”

The council furthermore wonders about the lower budget for the Justice Ministry (from 68.6 million to 67.4 million guilders) “while there is a plan of approach for this ministry.” Without further explanation, the council wrote in its advice, the role of the shift from Plan Safety and the plan of approach for the immigration process to personnel costs remains unclear.”

The council also noted that while the preparations for a national health insurance are in full swing, the budget does not contain a provision for this initiative.

The country’s expenditures are affected by cost cutting measures, according to the explanatory notes. But the Advisory Council says that “there are insufficient descriptions of which ministry proposes which measures.”

The budget links the increased government tasks with compensation for the decline in economic growth. “It is not clear how executing government tasks could achieve a compensation for the decline in economic growth,” the council wrote in its advice. “More attention must be given to sustainable investments like the building of schools and roads that benefit the community as a whole and that will stimulate economic growth.”

The Advisory Council welcomes the plans to revamp the tax system, but it asks the government to pay special attention to six different issues. The first one is the need to eliminate the discrepancy between the number of companies that are registered at the Chamber of Commerce and the number of companies that have a crib number at the tax office. The expert group that deals with the new tax system should devote time to outstanding taxes and the collection of profit taxes over the previous years, the council advises.

At the same time the council notes that profit tax will generate less revenue due to the economic conditions. The council fails to understand why it is not possible to calculate exactly the revenue from gas excise and transfer taxes over the past couple of years. An estimate of the expected revenue from gas excise is missing in the budget, and this is incorrect, according to the council.

The advice also urges the finance ministry to add an overview of collected road tax over the past couple of years instead of just a projection for 2012/.

Revenue from lottery permits could increase, the council points put. It advises to withhold taxes from lottery-prizes and stricter controls on profit and value added tax on lottery-sales and prizes.

The council advises the finance ministry to contract new loans only after the intended improvements in tax-collection have been implemented.

The council furthermore notes that the government has only budgeted the payment of interest on outstanding long-term loans. “The consequence is that paying off the debts must be done by contracting new loans. The question is whether this is desirable.” The council spotted in the overview of long-term loans five loans labeled “Sint Maarten 2010.” It is unclear what these loans are for, the council states in its advice.

The council draws attention to the fact that the costs of the government are mostly going up due to an increase in personnel costs. “The council is of the opinion that it is possible to work more efficiently by training the current staff better.”

The council also warns that the government will most likely have to adjust its level of expenditures during the year. This is because, according to the draft budget, the projected extra income tax revenue of 22.7 million is uncertain and that there is a risk this amount will not be collected in its entirety.

Minister Shigemoto did not react to the detailed remarks about budget-items that lack an explanation. Instead, Shigemoto wrote that “the government will take into account the other general remarks and in how far these can be fulfilled.” He asked understanding for the fact that the draft is only the second budget for country St. Maarten. “The finance ministry attempts every time to improve the complete budget process in its totality. We will take the Advisory Council’s remarks into account for future budgets.”

Did you like this? Share it:
Advisory Council criticizes 2012 draft budget: Lack of explanations and no target dates by

Comments are closed.