Tax-compliance measures are not working

POSTED: 09/28/15 7:08 PM

Cft: “Structural overhaul personnel costs necessary”

St. Maarten – Measures the government has put in place to increase tax compliance are not working. This appears from the reaction from financial supervisor Cft to the second execution report 2015. In the first half year, tax revenue fell 8 million guilders below budget. For the whole year, St. Maarten expects to collect 8.6 million guilders less than budgeted.

Nevertheless, the government wants to increase income levels for 2015 to 470 million guilders but, as this newspaper already reported last week, this does not have the approval of the financial supervisor.

“By taking additional measures St. Maarten wants to reach a level of 470 million guilders in 2015,” the Cft notes in its reaction to the execution report in a letter addressed to Finance Minister Martin Hassink that has also been sent to the chairman of parliament, Dr. Lloyd Richardson. “Increasing income in the regular account to 470 million is according to the Cft not realistic.”

The Cft also disputes the calculation St. Maarten made: “The measures the government has in mind, and that are not specified in the Cft-letter, project 25 million guilders in additional income, while the prognosis for 2015 has been down-graded from 445 to 436 million guilders. “This results in a total prognosis of 461 million, if all measures yield the expected result,” the Cft notes.

The financial supervisor is not at all certain that this will happen: “The Cft considers the expected results from the measures very uncertain.”

The government wanted to spend the extra revenue it has projected on the justice ministry and on expenditures for the regulation to cover the costs of sickness for civil servants that has been under-budgeted.

The Cft has its doubts whether the government will be able to realize that much extra revenue in the last three months of the year.

The government is apparently prepared to sell some of its assets, as the Cft recommended earlier this year: “St. Maarten indicates that the expected book profit of 16 million guilders is uncertain. The Cft advises therefore to book this income only at the moment when it is certain that it can be realized. The Cft advises therefore to adjust the projection.”

The Cft furthermore advises the government to be more conservative with its projections of tax revenue. “In spite of all measures to increase this, tax revenue is disappointing again, due to projections of tax compliance effects that were too high.”

The Cft advises the government to maintain the income-level of 445 million guilders (436 million + 9.5. million from cleaning up the files at the tax inspectorate).

Concerns about personnel costs persist. In the first half year, the government spent 4.5 million guilders above budget in this department, mainly due to overtime payments and higher costs for allowances.

“There are frequent high overruns of the personnel costs due to among other things overtime. This implicates that the overruns of the personnel budget has a structural character,” the Cft writes. “For this reason a structural overhaul of the expenditures on personnel is necessary.”

The capital account contains an investment agenda worth 11 million guilders. But in the first half year, revenue and expenditures remained stuck at 22.9 and 21.2 million guilders respectively. “This fits the Cft’s impression that the estimate of the capital account is insufficiently realistic. The Cft has already learned from St. Maarten that steps have been taken to reform the capital account into a realistic investment agenda.”

Interest charges did not change this year, because the country did not contract any new loans. The current annual interest burden is 13 million guilders.

The payment arrears are currently 199 million guilders. There are no agreements yet with SZV and APS, but a completion of these agreements seems, near, according to the Cft. There is however no solution for the payment arrears that have to be solved by 2018.

This solution has to be included in a budget amendment that has to be approved before November 1.

The financial supervisor remains concerned about St. Maarten’s weakening liquidity position. It advises “additional measures to prevent complete exhaustion. The deteriorating liquidity position could result in new payment arrears. “The Cft is very concerned about this,” the letter to Minister Hassink states.

Cft-Chairman Age Bakker asks Minister Hassink for an explanation based on this risk and for a plan containing measures to improve the liquidity position.

The Cft received the second execution report on September 11, almost a month too late. According to law, these reports have to be submitted within six weeks after the end of a quarter. The Cft notes that, again, the report does not contain an update on the developments concerning financial management. “This information was also lacking in the first execution report of this year. The Cft requests again a report about financial management in the next report.”

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