Drastic measures in St. Maarten’s draft budget 2014

POSTED: 01/5/14 10:30 PM

Contribution for healthcare costs, frozen salaries and end to C.O.L.A.

St. Maarten – SZV-insured citizens will have to pay a 10 percent contribution for their healthcare expenditures starting this year. This is one of the measures included in the 2014 draft budget that is scheduled to be handled in parliament in the week that begins on Monday, January 13. The cabinet furthermore intends to downsize the package that falls under SZV-insurance, but details about which treatments swill no longer be compensated have not been announced yet. Other measures are the freezing of salaries for civil servants, the abolishment of periodic salary increases and the abolishment of Cost of Living Adjustment payments (C.O.L.A.).

The cabinet proposes thirteen measures designed to get the ever-increasing healthcare costs under control and to lower the deficits in the funds. Among these measures are an increase of the income-limit, cost control for medication, cleaning up of the PP-file, downsizing the package that falls under SZV-insurance and combating fraud.

The Board for financial supervision Cft writes in its December 3-advice that was just recently published on its website that the draft 2014 budget does not completely meet the standards of the consensus kingdom law on financial supervision. The financial supervisor sets several conditions before it is ready to issue a positive advice about the budget.

The first condition is that the government has to submit draft legislation to the parliament together with the budget that regulates lower state-contributions to the social insurance organization SZV and that regulates the control over healthcare expenditures. If the government does not submit this legislation, or if the parliament does not approve it, the full contributions to the SZV-fund must be entered into the budget.

The draft budget projects additional revenue of 6 million guilders through higher tariffs for services provided by the Ministries of Economic Affairs and Justice. The Cft demands in its advice that the cabinet substantiates this number. The legislation that regulates the higher tariffs must also be submitted to and approved by parliament together with the budget.

The Cft acknowledges the humongous challenge St. Maarten is facing since the constitutional reform process was completed. “Even after three years this requires serious investments in making the government apparatus more efficient and more effective,” the Cft writes in its advice, adding that this is true in particular for the financial management.

The Cft repeats in its advice that it expects – contrary to Finance Minister Hassink – that 2013 will close with a deficit. In an earlier report, the financial supervisor mentioned a possible deficit of 13 million guilders ($7.25 million).

The American economy is expected to grow by 2.7 percent this year; the Central Bank expects a 1.3 percent growth for St. Maarten in 2013 and a 1 percent growth this year.

The Cft notes that “drastic measures” are necessary to prevent that St. Maarten will run a deficit again this year. “Timely implementation and monitoring of these measures is crucial.”

The finance Ministry wrote in a letter that accompanied the draft budget to the Cft that the government’s minimal expenditure level, including contributions to the SZV, is 452 million guilders and that 90 percent of these costs are fixed expenditures. “The Cft understands from this that lowering the budget to 427 million is a big challenge.”

The financial supervisor notes that a number of expenditures are missing in the draft budget. “There are no reservations for the execution of the plans of approach for justice. The elucidation does not explain what the effects will be of the termination of Amfo and Usona funding.”

The draft budget contains 13 million guilders less than the law prescribes as contributions for the SZV. These contributions are for the co-insurance of family members. According to the Cft the draft budget does not take into account contributions needed to compensate deficits in the ZV/OV-fund and the FZOG, catching up with payment arrears and expenditures from 2013 that have been  moved from 2013 to 2014.

The ZV/OV-fund covers insurance against illness and accidents. The FZOG covers insurance for civil servants and their family members after their retirement.

The Cft assumes that all measures to control healthcare costs will be presented to parliament with the budget. The budget does not contain substantiation for the savings the measures will generate, the financial supervisor remarks.

The Cft shares the government’s concern about the personnel costs – currently around 40 percent of the budget. The government proposes twelve measures to bring these costs under control. Among these measures are a vacancy stop, the freezing of salaries, the elimination of periodic salary-increases and the elimination of cost of living adjustment payments. The cabinet also wants to adjust the compensation for medical cost and stop paying civil servants for unauthorized absence.

“These measures will have to be implemented in the short term if the government wants to get a grip on its personnel costs,” the Cft writes in its advice. “The Cft considers it worrisome that the ministries do not abide by the already announced vacancy stop and advises strict adherence.

The Cft repeated its earlier advice to conduct a core task analysis.

Without going into details, the Cft notes that the government intends to make significant investments in 2014. Partly they will be financed by resources that have been freed up through depreciation; the other part requires new loans. While the government stays within the interest burden standard with these projected loans, the Cft criticizes the fact that the budget contains only a limited elucidation about these investments.

The Cft notes that investments must meet the requirements of capital investments based on the System of National Accounts It is not possible to take loans for entities that operate outside of the government’s direct influence, the Cft concludes its advice with a clear reference to the St. Maarten Medical Center. How this will affect the hospital’s expansion plans is not clear.

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