Positive advice Cft on 2014 budget: Questions about stalling tax revenuePOSTED: 02/27/14 12:26 AM
St. Maarten – Financial supervisor Cft gave a positive advice about the 2014 budget, though the possibility remains that an amendment will be necessary in the course of the year. The budget projects 427 million guilders ($238.5 million) in revenue – significantly lower than the 2013 revenue, estimated by the Cft at between 405 and 410 million guilders.
“There is a risk that the 2014 revenue has been estimated too high,” Cft-chairman Prod. Dr. Age Bakker writes in the advice to Finance Minister Martin Hassink. “The disappointing tax revenue is possibly due to the tax inspectorate.”
The Cft points out that the nominal economic cumulative growth over the past three years was between 13 and 14 percent. “But the tax revenue over the same period did not, or hardly, increase. Therefore tax revenue as a percentage of national income has decreased.”
The financial supervisor says there is a need for further analysis of tax revenue and the tax inspectorate to find out why this revenue has not increased during the past couple of years “especially because St. Maarten has focused strongly on improving compliance. Up to now, this has not yielded any substantial result. The Cft is curious to know why the plan of approach of the Foundation Tax Inspectorate Accountant Bureau has not yielded the expected result.”
The Cft furthermore notes that the budget mentions several plans and measures “that have been only summarily substantiated and seem to be hardly worked out. Especially the measures in the field of social insurance and healthcare insurance miss sufficient elaboration.”
The financial supervisor wants to know how St. Maarten is going to cover the costs of its contribution to the AVBZ-fund and the healthcare insurance after 2015. The government suspended its contribution to both funds for two years and forced employees to pay double for the healthcare insurance.
The Cft also has its doubts about the capital account and the plans to contract loans to the tune of 200 million guilders (almost $112 million). While the interest burden from this investment package stays below the interest burden standard (5 percent max of the average state revenue over the previous three years), the Cft advises the government to set up a “multi-annual, realistic investment plan, with an overview of priorities.”
The Cft will assess the individual investment and financing proposals the moment they are submitted. “The loan proposals must be accompanied by sufficient substantiation to enable the Cft to assess whether they meet the requirements of the SNA and the Kingdom Law Financial Supervision.” SNA stands for System of National Accounts, the internationally agreed standard set of recommendations on how to compile measures of economic activity.
The Cft furthermore notes that St. Maarten still has not established the collective sector and the interest burden standard for 2014. “It is important that a review on all relevant legal clauses remains possible. A review based on the interest burden standards is one of the most important standards from the Kingdom Law Financial Supervision.”
The Cft allows St. Maarten for once to borrow to cover the investments it pre-financed from the country’s financial reserves in 2013. In the future, this will not be allowed anymore. St. Maarten has to use the funds it loans for these investments to increase its reserves, in order to improve the country’s liquidity position,
“This advice is in line with a motion the parliament approved to build up a financial buffer. It is furthermore important that the government shortly presents a proposal to the parliament for a policy about the necessary (financial) resistance capability.”
The Cft received the annual financial accounts of eight government-owned companies and notes that there are still many reports missing. The financial supervisor points out that there is a list of 30 entities of which it wants to see financial reports, something it made clear to the government already in 2012. These entities include, apart from companies, also foundations and independent bodies like the SZV and the Bureau Telecommunication and Post.
The Cft notes that the budget does not contain revenue from dividend payments from government owned entities.