First Citizens Budget Seminar 2019 Final

MARKET OUTLOOK & BUDGET SEMINAR 2019

THE APPROPRIATION BILL
For the Financial Year Ending March 31, 2020

Comments by Richard Peterkin
Partner, Tax and Transaction Services

Grant Thornton Windward Islands
May 9th, 2019

Agenda

➢ Saint Lucia Macroeconomic
Performance in 2018

➢ Saint Lucia Central Government
Performance in 2018

➢ 2019/2020 Expenditure and
Revenue Estimates

➢ New Fiscal Measures
➢ Downside Risks and Concerns
➢ Conclusion

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Saint Lucia Macroeconomic
Performance in 2018

Key Economic 2018/19 2017/18
Indicators
1.5% 3.3%
Rate of Growth

GDP at Market Prices 5,094.8 4,874.8
(EC$Millions)

GDP per Capita (EC$) 29,422 27,949

Inflation Rate 2.6% 0.1%

Unemployment Rate 20.2% 20.2%

Public Debt (EC$ Millions) 3,306.3 3,177.3

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Saint Lucia Macroeconomic
Performance in 2018

Key Economic Indicators 2018 2017

Public Debt /GDP 64.9% 65.2%
Debt Service/Current
Revenue 27.0% 24.4%
Total Visitor Arrivals
1,228,662 1,114,756
Total Stayover Arrivals 394,780 386,127
760,306 669,217
Cruise Ship arrivals 1,609.6 1,527.7

Trade Balance (EC$M)

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Saint Lucia Macroeconomic
Performance in 2018

Mike Tyson – “You don’t know a plan
until it hits you in the face”

Global and local economy performance
mixed. Economic growth down to 1.5%

Mixed performance in main economic
sectors. Overall tourist arrivals up
10.2% (stayover 2.2%, Cruise 13.6%)

Manufacturing growth up 1.5% but
Construction declined by 21.2%

Agriculture grew by 5.8% but remains a
small contributor to GDP

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Saint Lucia Central Government
Performance in 2018

Central Government 2018 2017
Fiscal Operations
97.9 76.7
Current Account (EC$M) 101.5 52.3
(69.7) (110.1)
Primary Balance (EC$M) 1.3% 2.1%
Overall Balance (EC$M)
8.6% 2.0%
Deficit/GDP
7.1% 5.3%
Increase in Current
Revenue (15.3%) 7.6%
Increase in Current
Expenditure 80.9% 65.3%
Increase (decrease) in
Capital Expenditure
Capital Expenditure
Implemen6 tation

The 2019/2020 Appropriation Bill

Expenditure Estimates

Expressed in EC$ Millions 2018/2019 2018/2019 2019/2020
Current Expenditure Approved Projected Approved
Capital Expenditure Estimates Outturn Estimates
Debt Amortization (Principal)
1,173,685 1,139,602 1,201,911

176,860 143,184 246,717

137,038 128,768 142,961

Total Expenditure 1,487,583 1,411,554 1,591,589

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The 2019/2020 Appropriation Bill

Expenditure Estimates

Current Expenditure projected to increase
by 5.4% driven by increases in Wages and
Salaries (6.1%), Goods and Services (8.3%)
and Interest Charges on Debt (6.4%)

Capital expenditure planned to increase by
72.3% over actual achieved in 2017/18, but
is this possible given traditional low rates
of implementation?

Principal repayments on Debt will increase
by 11.0%, and Debt/GDP will increase

Total expenditure projected to increase by
12.8% or 29.1% of GDP

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The 2019/2020 Appropriation Bill

Financing the Expenditure Estimates

Expressed in EC$ Millions 2018/2019 2018/2019 2019/2020
Recurrent Revenue Approved Projected Approved
Estimates Outturn Estimates

1,109,215 1,169,718 1,207,480

Capital Revenue and Grants 77,414 44,633 51,752

Bonds, Treasury Bills and Other 300,954 197,203 332,357
Loans
1,487,583 1,411,554 1,591,589
Total Revenue
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The 2019/2020 Appropriation Bill

Financing the Estimates

Recurrent Revenue projected to increase by
3.2% due to expected increases in Tax Revenue

Grants projected to increase by 18.8%over
actual in 2018/19, due to Grants from Taiwan
($22.1 M), Japan International Corporation
Agency ($10.4 M), CDB ($4.4 M) and others
agencies and Governments.

Overall deficit to be financed by External
borrowing ($119.2 M), and Treasury Bills and
Bonds of $213.1 M.

Net increase in Public Debt of $189.3 M would
increase Debt to GDP by approximately 3.4% to
68.3%

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The 2019/2020 Appropriation Bill
Current Expenditure Estimates

Expressed in EC$ Millions 2018/2019 2018/2019 2019/2020
Wages and Salaries Approved Projected Approved
Goods and Services Estimates Outturn Estimates

524,811 503,924 534,486

288,844 272,921 295,673

Transfers and refunds 179,878 191,485 189,456

Interest charges on Debt 180,152 171,272 182,296
Current Expenditure 1,173,685 1,139,602 1,201,911

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The 2019/2020 Appropriation Bill

Current Expenditure Estimates

While the increase in interest charges and principal

repayment is understandable and unavoidable, the
continued increases in Wages and Salaries and
Transfers is disappointing, given the fact that there were
actual reductions of 4.0% and 5.5% respectively during
2018/19.

The total cost of Salaries, Wages, Allowances and
Retiring Benefits is projected to cost $537.4 M, or 45% of
Current Expenditure.

Other significant planned expenditure include
Consulting Services and Commissions of$46.4 M, Rental
and Hire of $58.5 M and Grants, Contributions and
Subventions of $164.1 M

Sinking Fund contribution of $12 million is small but
important, given loan principal repayments of
$130.9 M

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The 2019/2020 Appropriation Bill
Recurrent Revenue Estimates

Expressed in EC$ Millions 2018/2019 2018/2019 2019/2020
Approved Projected Approved
Taxes on Income and Profits Estimates Outturn Estimates
Taxes on Property
Taxes on Goods and Services 269,791 278,709 285,187
Excise taxes 6,627 9,431 9,270
Customs and other import duties
Taxes on use of goods and 322,765 335,545 350,150
permissions 47,437 49,397 50,282
Non Tax Revenue
Recurrent Revenue 253,397 239,265 249,674

146,315 188,106 193,152

62,883 69,265 69,765
1,109,215 1,169,718 1,207,480

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The 2019/2020 Appropriation Bill

Recurrent Revenue Estimates

No new taxes or increases in tax rates, and tax reform of
personal tax is expected to be neutral. Economic growth
in projected to increase Corporation tax revenue by 5.6%
to $99.6 M.

No changes in the Property tax regime or expected tax
revenue. This could be an area for increased revenue
based on better services.

Taxes on Goods and services are mainly from VAT of
$345 M, a projected increase of 4.4% which seems
reasonable.

Customs and other import duties are mainly from excise
taxes and duties on imports, are projected to increase by
8% based on economic growth of 3.0%. This may be a
little optimistic given the range of concessions given to
external investors.

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The 2019/2020 Appropriation Bill

Recurrent Revenue Estimates

Taxes on use of Goods an Permissions is projected to
grow by 2.6%, and the main components are Service
Charges on Imports ($82.0 M), Citizenship by Investment
(CIP) fees ($65.5 M) and Airport taxes ($35.7 M)

While CIP revenue was robust in 2018 ($66.3 M) and
exceeded expectations of $29 M in the 2018/19 new
applications have slowed considerably in 2019 due to
uncertainties and pressure from the EU and OECD.

Airport taxes increased in 2018, partly to finance the HIA
development, but there is now increasing pressure on
regional Governments to reduce airport taxes on LIAT
due to the financial difficulties being experienced by that
carrier. LIAT accounts for 15% of our arrivals.

The $4.00/gallon excise tax on petroleum is supposed to
finance road infrastructure, but continued higher prices
of imported products could affect revenue realized.

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The 2019/2020 Appropriation Bill

New Fiscal Measures

Government is planning to implement an
accommodation fee on Hotels of about
US$5/person/night. This is still under discussion, and
could not be finalized in time for inclusion in the
2019/20 Estimates. The revenue would go directly to the
Saint Lucia Tourism Authority for Marketing.

Tax on AirBnB rentals in Saint Lucia. Not specified.

A review of the Property Tax structure to make it more
equitable and transparent, but no changes expected in
2019/20.

Personal tax changes to be implemented on January 1,
2020. This measure is almost identical to the prop[osals
that were included in the 2015/16 Estimates of the
previous Administration, but was not implemented on
January 1, 2016 as planned due to revenue constraints.

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The 2019/2020 Appropriation Bill

New Fiscal Measures

The proposed changes in the Personal Tax Regime is
the signature fiscal measure announced in the budget,
and is expected to be revenue neutral to Government,
but will both decrease and increase taxes to taxpayers,
depending on the level of your taxable income and
deductions. The new structure includes>

• An increase in the Personal allowance from $18,000
to $23,000 and from $24,000 to $31,000 for
pensioners

• Reduction in tax brackets from four to three, but top
rate remains at 30%

• Personal deductions to be capped at $25,000 per
income year, with only 4 categories of deductions –
Housing, Future and Financial Benefits, Medical and
Child and Education

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The 2019/2020 Appropriation Bill

Downside Risks and Concerns

The economic growth estimates for Saint Lucia by external
agencies such as the IMF and the CDB, indicate that if things go
right externally and internally, growth could increase to 3% in
2019/20.

There are considerable downside risks to the best laid plans of
small countries like ours, such as the vulnerable nature of the
Tourism Industry, natural disasters, lack of fiscal space due to
high public debt and weak financial industries, external pressure
by developed countries on our Offshore and CIP industries, and
fragmentation in our regional institutions such as the OECS and
CARICOM due to political differences.

Our biggest downside risks, however, may be continued low
productivity in the public and private sectors, and political
polarization because of real or perceived cronyism, nepotism,
patronage and influence peddling in Governments procurement
and expenditure.

These concerns are not unique to this administration, and the
Throne Speech spoke of new legislation that would address
some of these concerns, but there was not enough in the Budget
Address to give us greater comfort that these would be
implemented.

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The 2019/2020 Appropriation Bill

Conclusion

A government budget or Appropriation Bill is an annual financial
statement presenting the estimates for Revenue and Expenditure for
the ensuing financial year.

The Throne Speech, Estimates and Budget Address set out the
Governments Legislative, Social and Economic policies, objectives
and priorities for the year, with an indication of the immediate and
medium-term consequences of the Estimates to be approved.

The success of the budget is the extent to which it is
understandable, achievable, realistic, equitable and capable of
generating inclusive economic growth, employment and
improvement in the living standards of the domestic population.

This Bill attempts to do all of these things, and sets out goals,
targets, priorities, sector strategies key result areas and game-
changers, the success of which can only be judged over the coming

year. We hope that timely economic data will be publicly available

throughout the year for the public to make an informed judgement,
and for the Government to change course if necessary due to
exogenous developments and domestic expectations.

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The 2019/2020 Appropriation Bill
Here Endeth the Lesson

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Grant Thornton

An Instinct for Growth, an Intuition for Solutions

Partners:

Anthony Atkinson, Richard
Peterkin, Malaika Felix, Rosilyn
Novela and Sharon Raoul

Contact:

[email protected]

Websites:

http://www.grantthornton.lc/lc/

http://www.grantthornton.com/

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