Finance Minister Gibson: “Very frugal budget with room for expansion”

POSTED: 02/3/16 6:18 PM

 

 

St. Maarten News:  The government intends to sell the new administration building on Pond Island for around 50 million guilders to social insurance agency SZV. With the building, SZV will also acquire the adjacent terrain of more than 15,000 square meters and the parking lot that borders on the TelEm property of 5,000 square meters. A parcel of land bordering on this parking lot of 1,800 square meters is also part of the deal. This appears from the explanatory notes with the draft 2016 budget that Governor Holiday submitted to the parliament on Monday.

In the preface, Finance Minister Richard Gibson Sr. points out the most remarkable change in this budget compared to those of previous years. “The ceiling for expenditures has been set at the level of revenue that can be realized with a great amount of certainty.”

The budget does not contain “results of initiatives that still have to be undertaken” and additional costs are only permitted “after additional income has been realized.”

The minister notes that this approach has resulted in a “very frugal budget that can be expanded as soon as revenue-increasing measures have yielded results.”

The government is faced with challenges to address a large number of bottlenecks in the field of finances, the minister writes. This is a reference to executing the budget, addressing liquidity deficits, payment arrears, budget discipline and issues with the sustainability of the healthcare and pension systems.

“We also have to address the urgent need for the growth of the functioning of the civil service – in quality and quantity – in a situation where budget cuts are necessary and inevitable, while realizing that the most important direction for solutions is towards a conservative spending policy and boosting a structural growth of government-revenue.”

Most items in the budget are not much higher than they were in 2015. “Increasing revenue requires adjustments to legislation and those processes take a serious amount of time. This means that results of such improvement-initiatives taken in 2016 will only yield results in 2017,” the document states.

Minister Gibson notes that St. Maarten’s debt/GDP ratio is 37 percent – “an acceptable level compared to the other countries in the Kingdom.”

Nevertheless, St. Maarten has to be careful with its investments and establish multi-annual priorities, the minister says. “This has to do with the interest rate that is currently extremely low, but it is expected to increase this year. The costs for future loans will therefore increase.”

The country’s liquidity position remains worrisome. “The pressure remains high and in 2015 we could not use liquid resources to decrease payment arrears substantially. Far-reaching measures are needed to improve this situation structurally in 2016,” the minister points out.

Part of the plan is the sale of government assets (like the government building on Pond Island). The settlement of the division of assets of the former Netherlands Antilles also plays a part. The government thinks this will happen this year.

The budget for 2014 closed with a deficit of 15 million guilders, due to the fact that “budget-discipline is not at the desired level.”

The country’s GDP was 1.9 billion guilders in 2014, but tax revenue was 18 percent of GDP) – 4 percent below the average in the Caribbean.

The explanatory notes also address the political situation and its effect on the budget. “The frequent changes of government are in the way of the continuity of many initiatives. For consecutive governments it has proven difficult to realize their ambitions,” Minister Gibson writes.

With elections in September on the agenda, it is possible that yet another government will take office later this year.

Previous budgets always opted to bridge deficits by booking results of measures that still had to be taken. Due to the limited life cycle of the government these measures never came to fruition.

The 2016 budget does not contain such assumptions. Instead, the point of departure is the average revenue over the last three years, increased by the GDP-index.

All in all, the minister notes, the budget is based on a very conservative level of expenditures. “The government intends to do this through measures like a vacancy-stop, strict supervision over expenditures like fringe benefits for personnel, a stricter travel policy and a decrease in central costs for communication and utilities. Furthermore, the government will apply “integral reluctance” with purchases.

To address the payment arrears for general pension fund APS, the government intends to change the pension ordinance for civil servants retroactively to 10-10-10. The legal pension premium due to APS was 25 percent, but the government only paid 22 percent over the past five years. APS claims the difference, saying that its real costs are actually 28 percent. The government wants to decrease the premium retroactively to 22 percent and thinks it is possible in the future to further decrease this percentage to 18.

At the proposal of social insurance agency SZV, the government want to introduce a so-called swing-fund (schommelfonds) whereby deficits in the healthcare insurance (ZV), accident insurance (OV), and the healthcare fund for retired civil servants (FZOG) are compensated from surpluses in the AOV/AWW and AVBZ (old age pension, insurance for widows and orphans and insurance for the chronically ill and handicapped).

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