DEBUNKING ALLEN’S “FIVE-POINT PLAN”

THE MATH JUST DOESN’T ADD UP…

WAS THE UWP’S 10 POINT PLAN A MARKETING AFTERTHOUGHT?

Chastanet’s Five-to-Stay-Alive remains largely an unsolved mystery.

First, we have now come to know that 5-to-stay-alive was almost an after-thought

which was hastily added into the UWP manifesto. It was clearly written hastily as

the postscript at the bottom of a page which originally probably had merely

photos (pg. 2), so much so that it could not even fit properly in the space.

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While it speaks to five points, the real punch and mystery lies in point one: the

immediate reduction and eventual elimination of VAT. The matter of the promised

amnesty of hospital bills, for instance, an initiative taken on by my Government in

2012, is found nowhere within the body of the 4-page section on Health.

Five-to-Stay-Alive is first and foremost an election gimmick that hopes to deceive

the Saint Lucian population. Five-to-Thrive is of that same vein. In fact, ALL 5 points

in the 5-to-Thrive do not even exist in the UWP Manifesto, therefore suggesting

it was an afterthought aimed at seduction of the young people towards the UWP.

PROMISED REDUCTION & ELIMINATION OF VAT

Out of the 72 page manifesto, the mention of the reduction and elimination

removal of VAT receives 1 line:

“Reduce the Value-Added-Tax (VAT) and outline a plan for its ultimate

elimination; and replace it with a restructured tax regime that will be less

burdensome but without compromising the revenue base.”

Now, what does this really mean?

The UWP would like you to believe that removing VAT is the solution to all of Saint

Lucia’s problems and in particular the cost of living. Yet still, Allen Chastanet has

admitted that: “VAT is the most effective tax worldwide.”

That is truly a gimmick and nothing more. VAT raised about $346 million, out of

Government’s 985 million in tax revenue last financial year (2015/16). In fact, VAT

represents 35% of all of Government’s tax revenue.

If we might speak hypothetically for a moment, if your boss took off 35% of your

salary tomorrow, would you be able to survive? Five-to-Stay-Alive contains three

tax measures that will cost the Government in excess of $365 million is lost

revenue. But clearly, the UWP manifesto says that there will be NO compromise of

the revenue base.

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The way that Allen Chastanet expressed it on his election platform and at public

meetings, however, he drops off the important point: “without compromising the

tax revenue” disclaimer.

If implemented without any replacement tax, what it will do is send SAINT LUCIA

BANKRUPT in less than 5 years.

Our debt-to-GDP ratio which currently stands at 75% would jump to at least 125%

of GDP in under 5 years.

That’s way beyond what is manageable. We will not be able to service our debts as

we would have to borrow more to keep afloat; that is assuming you would still be

able to borrow. The Government would eventually start defaulting on debt

payments and would have a hard time paying anything else (salaries, purchase of

goods and services, etc).

The Government would eventually have to retrench workers.

The ECCB, of which the Saint Lucia is the largest member, will be forced to devalue

the EC Dollar, probably by at least 10-15%. You would then need EC$3.10 to get

US$1.00.

The $150 more in your pocket that the UWP claims you would get for every

$1000.00 would become meaningless by 2020 because of increased taxation which

will be imposed by the IMF and the fact that your dollar is worth less than before.

This is the sad reality of what WILL HAPPEN IF you remove VAT.

VAT is not bringing in that much more new revenue as the UWP may want you to

believe. VAT is a replacement tax which taxes consumption. Remember that in the

past there were taxes on goods and services: consumption tax, environmental levy,

telephone tax, hotel accommodation tax, cellular phone tax. In fact, sometimes

consumption tax was well over 30% on some goods. Those taxes before raised

about $200 million in pre-VAT 2011.

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A summary of this is shown on the next page:

Table 1 Revenue Collections for VAT & Taxes which it replaced (in millions of $EC dollars) (extracted from Appendix 37, pg. 90, Economic & Social Review 2015).

Revenue 2005/6 2006/7 2007/8 2008/9 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16

Cellular Tax 7.63 9.05 11.95 12.81 12.56 17.74 18.63 10.47 0.01 0.00 0.00

Consumption Tax (Domestic)

8.32 8.05 9.85 6.38 6.35 5.67 6.11 4.22 0.11 0.01 0.02

Consumption Tax (Imports)

104.67 111.54 112.24 136.28 140.17 113.70 111.93 48.30 0.64 0.10 0.27

Hotel

Accommodation Tax

28.69 29.53 33.45 35.02 25.50 34.25 39.62 22.40 1.94 2.58 0.67

Environmental Levy

17.45 21.56 18.03 15.97 14.35 16.18 16.19 8.17 0.17 0.01 0.00

Pre-VAT Taxes TOTAL

166.76 179.73 185.52 206.46 198.93 187.54 192.48 93.56 2.87 2.70 0.96

VAT (Goods &

Services)

63.12 157.40 183.25 183.87

VAT (Int'l Trade & Transactions)

75.30 141.49 151.14 162.50

Total VAT 138.42 298.89 334.39 346.37

Today, since the implementation of VAT, the difference between these taxes (at

the 2011/12 level) and VAT (2015/16) is about $153 million in revenue.

Nearly all of that has gone into paying for the 14.5% salary increase that King gave

in 2007 and the increased debts and interest payments left by the last Government.

THE UWP’S RUNAWAY EXPENDITURE CAUSED OUR FINANCIAL TIME BOMB

You see, the hard reality was that the UWP Government, of which Allen Chastanet

sat in as minister for Tourism, was spending more than the country could

reasonably afford. The Labour Government found a slew of consultants in nearly

every ministry, nearly 100 in total across the Government. This was unprecedented.

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Have a look at the table below which shows a comparison of spending between the

parties, UWP between 2007-2011 and SLP between 2012-2015:

Table 2 Comparison of Government Spending Between 2 Regimes (in millions of EC dollars)

UWP Adminis tration (07-11) SLP Adminis tration (12-15)

Spending Head 2006/7 2011/12 2015/16 Diff % Change Avg

Annual

%

Change

Diff % Change Avg

Annual %

Change

Tota l Current Revenue

655.98 835.96 984.79 179.98 27% 5.5% 148.83 18% 4.5%

Of which:

Tax Revenue (Income)

620.31 764.59 933.73 144.28 23% 4.7% 169.14 22% 5.5%

Non-Tax Income (Fines, Fees, Etc)

Tota l Current Expenditure

554.91 776.63 910.95 221.72 40% 8.0% 134.32 17% 4.3%

Of which:

Wages & Salaries 255.65 349.52 381.68 93.87 37% 7.3% 32.16 9% 2.3%

Interest

Payments

78.72 105.82 162.29 27.1 34% 6.9% 56.47 53% 13.3%

Goods & Services 102.7 145.99 169.7 43.29 42% 8.4% 23.71 16% 4.1%

Current Transfers 117.84 175.3 197.29 57.46 49% 9.8% 21.99 13% 3.1%

Current Revenue

less Current

Expenditure

101.07 59.33 73.84 -41.74 -41% -8.3% 14.51 24% 6.1%

Total

Expenditure

845.9 1142.77 1177.02 296.87 35% 7.0% 34.25 3% 0.7%

To summarise, under the 5 years of the UWP Administration, the following

happened: overall spending went up by 35%, or on average by 7% per year.

Critically, current expenditure went up even faster by 40%, or by 8% per year on

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average. That is equivalent to an increase in current expenditure by $221 million

per annum!

The main pressures were seen across all spending areas:

1. Wages & salaries up by 37%, a whopping $93.9 million;

2. Current Transfers up by 49%, or by $57.5 million;

3. Interest Payments up by 34% or by $27.1 million; and

4. Goods & Services up by 42% or by $43.3 million.

In effect, the UWP left Government with an economic time bomb ticking away.

By 2012/13, the Government was not even making enough money to meet current

expenditure. In 2012/13, the year VAT became effective, Government ran a

negative current balance of over -$52 million. Government was borrowing to keep

the basic functions of Government running. The fiscal deficit, which the IMF and

World Bank advise to be no greater than -3% of GDP, stood at over -9% of GDP.

Debt was racing up.

LIMITED FINANCIAL OPTIONS & INTRODUCTION OF THE VAT

Your Labour Government had no choice but to correct these matters or else Saint

Lucia faced certain financial and economic disaster. In those early years upon

taking office, economic activity remained dull thanks to the flight of investment

under the UWP and investors not having confidence in the Saint Lucian economy

due to the poor fiscal position. Growing out of the problem was not an option.

Government was faced with the choice of curtailing/reducing expenditure AND

increasing revenue. The two had to be done simultaneously because of the extent

of the problem left behind by the UWP.

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The extent to which the Government could reduce expenditure was limited due to

the fact that much of the spending was fixed: mandatory debt interest payments

and public service salaries. Otherwise, we would have faced the fate which I

described, the dreaded IMF.

SAVING SAINT LUCIA: WALKING A FISCAL TIGHT ROPE

In contrast to the 40% increase in spending under the UWP, current spending under

Labour increased by 17%. In fact, total spending per annum only increased by 7%

under Labour’s tenure, compared to the 35% increase under the UWP’s term.

Annual revenue increased by 18% or by 149 million between 2011-2015. This was

largely due to the introduction of the VAT and was just enough to eliminate the

negative current balance. Today, we are back to enjoying a positive current

balance.

Under the SLP between 2012-2015, recurrent spending increased by 17%, of which:

1. Wages & salaries up by 9% or $32.2 million;

2. Current Transfers up by 13%, or by $21.99 million;

3. Interest Payments up by 53% or 56.47 million; and

4. Goods & Services up by 16% or 23.7 million.

ALLEN’S PLAN INVOLVES REMOVAL EXEMPTIONS

Today, however, we now understand that Allen Chastanet’s true intent is to

introduce changes to VAT that in fact will not to the benefit of the ordinary Saint

Lucian.

Allen himself, at a Town Hall Meeting in Gros Islet, admits that VAT is the best and

most effective tax system in the world.

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But, you see, his true intent lies in his very own words again. He said the following

at the UWP Economic forum this week:

“When VAT has zero exemptions, it also means that it allows you to reduce

on the tax rate….The more exemptions that you put into VAT, what it then

causes is for the VAT rate to go up and the administration of the VAT

becomes even more difficult.”

Herein lies Allen’s true intentions. He may promise a reduction of VAT, but he

subtly implies his true but unstated intention to reduce the number of goods that

are VAT exempt. Currently, the number of items upon which people do not pay

VAT is over 70. Furthermore, an analysis of the consumer price index trends will

suggest that prices of goods have been on a continuous upward trend for years,

including during the period 2006-2011. VAT has not been the principal cause of

price increases at the supermarket. Many other factors exist, including a strong

monopoly within the market.

THE TRINIDAD EXPERIENCE

We need only take the recent example of Trinidad & Tobago where the PNM

Government came in promising to reduce VAT from 15% to 12.5%.

They did so while drastically reducing on the number of items that were exempted

or zero-rated. What does this mean in a Saint Lucian context? Most of the zero-

rated and exempted items are groceries, electricity, water and pharmaceuticals.

Allen’s suggestion of broad difficulty with administration of the VAT is misleading.

The supermarket monopoly is the company that would have the most value added

items. Removing these items from the zero-rated list would mean the price of

basic food items increasing even more. This move does not benefit the poor. In

fact, it is anti-poor as persons with low incomes are known to spend

proportionally more on food.

Furthermore, Government took a decision earlier on not to introduce VAT on water

and electricity. This amount to foregone revenue in the region of $40 million.

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Would Allen Chastanet remove these exemptions as well in the name of his

reduction? Any 1% reduction in the VAT rate would result in the loss of

approximately $23 million. Would Allen reduce VAT by 2.5% or about $60 million

and simply offset this by reducing exemptions? He needs to come clean with his

true intentions and stop deceiving the people of Saint Lucia, particularly the youth.

5 TAXES TO REPLACE VAT

Now, if reduction of VAT was not enough, he’s also promised the removal of the

Value-Added-Tax within a year. Only until his programme on News Spin with

Timothy Poleon on Friday June 3rd did Allen indicate his intention as to how to

eliminate the VAT. He claims that he need only worry about raising the difference

in revenue between the old pre-VAT taxes and the current VAT, which we showed

above (table 1, page 4) to be about $153 million. He then suggests that he has to

only add an 8% sales tax that would raise, claims about $75 million.

Well, here is where Allen is trying to confuse us. First, it would mean he would have

to re-introduce the old taxes, itself a rather regressive step given the cost of

administering those taxes.

And then on top of that, raise a sales tax to meet the difference. So, you would

have to bring back the collection of old taxes (primarily consumption tax, hotel

accommodation tax, cell phone tax, environmental levy), and then add on the sales

tax. But by his own assertion, a sales tax with a rate of 8% would generate “75 to

80 million dollars.” [taken from Allen Chastanet’s statement on News Spin, June 3,

2016].

WHY ALLEN’S MATH DOESN’T ADD UP WITHOUT DRASTIC CIVIL SERVICE CUTS

So, if we should follow Allen’s logic, we should reintroduce the old taxes and then

add a sales tax. But by his own admission, 8% would raise $80 million. That would

mean to raise the required $153 million, he would need at least a 15% sales tax!

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So you would replace 15% VAT to bring back 4 old taxes (2 of which by the way

can no longer work due to WTO rules) AND introduce a 15% sales tax? What’s the

difference Allen, if not making things worse?

For his 8% sales tax to work, he must find an additional $80 million in savings! He

then goes on to suggest that we can realise savings by reducing on the Ministry of

Foreign Affairs and consultants. The entire Ministry of External Affairs budget in

2016/17 is set at $26 million. The consultant argument as well is bogus. The entire

professional and consulting fees head of the Government in this year’s estimates is

$8 million. And much of that is for doctors under the Ministry of Health ($1.5

million), and legal services under the Office of the Attorney General and Ministry

of Legal Affairs ($3.2 million).

So let’s look at Allen’s equation, assuming we closed the Ministry of External Affairs

and took out all the consultancy services of the Government:

Removal of Current VAT Revenue minus $346 million

Reintroduce Old Tax Regime (C-Tax, HAT, EL, CT) plus $195 million

Introduce a new 8% sales tax plus $ 80 million

Close down the Ministry of External Affairs save $ 26 million

Remove all Professional & Consulting Services save $ 08 million

BALANCE (Funding Gap) minus $37 million

Allen’s math just doesn’t work out! Otherwise, he would need to find a way of

cutting the Civil Service by $73 million or by 20%! Even assuming that he can close

the External Affairs Ministry and end all professional and consulting services

(which is impossible), he would still be left with an annual shortfall of recurrent

revenue of $37 million. That’s equivalent to a 10% reduction in salaries of all

public servants!

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TRUE INTENTIONS

Saint Lucia, be smart! Don’t let gimmicks and sweet sounding promises fool you.

Demand plans that are well though out. That are calculated. The truth is, Allen

Chastanet will never remove VAT. He probably will never reduce VAT either. If

anything, he may well remove the many exemptions to VAT that he’s already

complained about in smaller private meetings and his economic forum.

VAT is a tax that nearly every country around the world has. The UWP always

intended on implementing VAT, they just never had the courage to do so, but would

have been forced to at some point. They had already promised the IMF this.

VAT was always meant to be set at 15%. They also planned on having VAT on water

and electricity. VAT on those utilities would result in another $40 million in revenue

but the Kenny Anthony Government decided to protect the consumer from this.

STAY ALIVE. STAY AWAY FROM DELIBERATELY MURKY PLANS.

STAY CLEAR FROM SOMETHING THAT JUST DOESN’T ADD UP.