Dear Sir,
Many of us, (I am no exception), who failed to discipline and control our weight, at some point, tried some diet pill hoping it will help us rapidly lose excess weight without the need for rigorous diet and exercise. Most of us ended up being disappointed as the pill either did not work or did so only for a short while. In relation to the Saint Lucian economy and society, UWP SOS-7 is analogous to that pill. It may make us feel good for a short while, but ultimately won’t serve our goal.
UWP SOS-7 appears to promise all sorts of goodies free of cost. Yet its chief proponent has accused the population of being mendicants. As I showed previously, the promised VAT reduction in “5 to Stay Alive” was not even a placebo; I will illustrate why UWP SOS-7 is false medicine and far worse.
St Lucia’s VAT and Excise share of the economy
UWP SOS-7 appears to be predicated on the notion that Saint Lucians are overtaxed. While no one enjoys paying taxes and some believe they are paying too much, it is folly to believe that the nation is overtaxed.
I make this claim based on the following:
- The tax-to-GDP ratio in Saint Lucia is 21 percent. The corresponding average in OECD countries is 34 percent. The Caribbean average is 23 percent, whilst in Jamaica, the current model for economic and fiscal management, it is 29 percent;
- We continuously lament the underfunding of education, health, security and physical infrastructure, and a host of other areas;
- Government budgets are funded either through taxes, loans, grants and a few nontax measures such as fees, fines, property sales, and sales of goods and services;
- As a middle-income, independent nation, we can’t expect to rely on grants from foreign governments and entities to fund our development;
- The state must find the money to repay any loans.
The accompanying graph shows the government of Saint Lucia’s revenue and expenditure for the decade 2012/2013 – 2022/2023, to illustrate the concern. I include the financial year 2020, notwithstanding COVID, because as a small open economy, we are always subjected to external shocks and must plan accordingly.
It should be noted that annually, grants account for less than 10 percent of total revenue, and as such, are not the primary means of funding government operations and programs. Recurrent revenue represents less than 93 percent of recurrent expenditure. The implication of this continued deficit is a widening of the national debt, as the government must borrow or take loans to bridge that gap.
Developed countries with sophisticated capital markets have a defense against irresponsible utterances that could compromise their fiscal sustainability. The fates of former Chancellor of the Exchequer and former prime minister of England Kwesi Kwatang and Liz Truss provide illustration.
In countries like Saint Lucia, where that market mechanism is limited, greater discernment is needed from individuals.
Whilst the idea of providing pensions to farmers who didn’t pay into the national insurance, free tuition to students attending the Sir Arthur Lewis Community College (SALCC), expanding the K-9 unit in the Royal St Lucia Police Force (RSLPF), creating a border control agency, and providing health insurance to everyone are laudable goals, which can create a sugar-rush, it will increase government expenditure.
If this increase is paired with the removal of the health and security levy and the lowering of excise revenue from petroleum, without introducing a new tax or increasing existing tax rates, an economic crash is inevitable.
Fiscal responsibility is paramount in the management of the finances of any country. Therefore, politicians or political parties that convey the impression that most items can be given free-of-charge to the citizens are irresponsible and reckless.
UWP SOS-7 is bad medicine. Do not, as some people say, FAFO how bad.
By Darrel Montrope
