Prime Minister outlines new initiatives to stimulate economy

KINGSTOWN, St Vincent, CMC – Prime Minister Dr. Ralph Gonsalves has presented an EC$1.11 billion (US$371) budget to Parliament vowing to stimulate the productive sectors as well as strengthen the fiscal and financial stability of St. Vincent and the Grenadines.

Gonsalves, who presented the fiscal package on Monday night, also outlined new tax measures.

The 2011 budget shows an overall deficit of EC$105.06 million (US$35.02 million). The 2011 Estimates of Expenditure, which was approved last week shows recurrent revenue estimated at EC$504.75 million (US$168 million)  and recurrent expenditure at EC$609.81million (US$203 million).

Gonsalves told legislators that last year, the budget, “on the face of it, had a current account deficit of $20.5 million (US$7.5 million). The actual outturn for the Budget, however, was a current account surplus of $1.3 million (US$481,000). I

“ndeed, there was an overall surplus on the central government’s accounts of $12.5 million (US$4.62 million) compared to a $55 million (US$20.3 million) deficit in 2009 on the combined current and central accounts of the Government.

“In other words, the Government was in 2010 most careful in its management of its resources, at once prudent and enterprising. In the current fiscal year, 2011, a current account deficit of $27 million (US$10 million) is budgeted.”

Gonsalves, whose ruling Unity Labour Party (ULP) was returned to power by a slender one-seat majority in last December’s general election, said that his government’s overall fiscal strategy for 2011 will focus primarily on stimulation of the productive sectors in order to return the economy to its growth trajectory. “We are looking to the private sector to play a more dynamic role in this process and have accordingly devised a number of new measures to provide the necessary incentives,” he said, adding that an equally important focus for 2011 will be on strengthening the fiscal and financial stability.

The Prime Minister said that with the island’s tourism sector emerging as an attractive investment opportunity his administration proposes to grant a Tourism Development Incentive Credit to investors who are developing tourism related properties for sale.

“This credit will be limited to the equivalent of five per cent of the selling price of each property and will only be used for settlement of the stamp duty payable by the developer on initial sale of the property.

“ Any subsequent re-sale of the property will be liable to the stamp duty in full. To qualify for this incentive credit there must be in the tourism project, a minimum of twenty units and an initial investment of not less than US$10 million. The incentive credit will not apply to those projects which have special legislative provisions,” he said.

Gonsalves said that the high cost of electricity, particularly the demand charge levied only on businesses, in St. Vincent and the Grenadines has been identified as a major constraint to business expansion.

He said as a result, the local electricity company, VINLEC, will continue to implement measures aimed at reducing the cost of electricity, including retrofitting generators to use a heavier fuel and reducing the  cost of supplying electricity by between EC$0.05 (One EC dollar =US$0.37 cents) and $0.15 per KWH;

“From 2011, I propose to eliminate the demand charge which has haunted commercial and industrial consumers for several decades. As of March 1, 2011 VINLEC would no longer impose this charge which is currently 9.6 cents per kWh. Instead, the energy charge for commercial consumers will be increased from $0.48 to $0.54 per unit and for industrial consumers from $0.44 to $0.45 per unit,” he said.

The Prime Minister also a reduction in the cost of lifting a container from EC$65 to EC$45 per 20’ container.

“This reduction is made possible because Central Government assumed responsibility for some EC$12 million owed by the Port Authority to the National Commercial Bank. The interest savings accruing to the Port Authority from the take-over exceeds $1.2 million per annum, some of which are now passed on to users of the Port.

He said there was also a common complaint by members of the business community that they are credit constrained.

“On the one hand, strict collateral requirements limit access to credit. On the other hand, the cost of borrowing, the lending rate, is very high. With no credit bureaus or formal exchange of information among lenders, the cost of conducting background checks is very high and adds to lending rate and the need for high collateral requirements.”

He said the government has designed a number of measures aimed at increasing credit to the productive sectors particularly the MSMEs segment, with special attention paid to service firms, which have different financing needs and borrowing capacities than the traditional manufacturing or agricultural operations. These include the provision of a grant of EC$600,000 to the Centre for Enterprise Development to enhance it’s role as a provider of business advisory services to medium and small enterprises.

Gonsalves said that over the past two years his administration has carried out a complete revaluation of all properties in the country with the stated intention of introducing a market value Base assessment to replace the current annual rental value assessment.

He said the number of properties identified in the revaluation exercise amounts to 40,700 as compared with 25,940 on the existing valuation lists, an increase of 57 per cent. Additionally, the existing level of compliance of the Property Tax is relatively low and the Government will be taking steps in 2011 to improve this level and to collect outstanding taxes.

“The additional revenue to be realised from the increase rental value, the increase in the number of properties, improved compliance and collection of arrears is estimated at EC$3.4 million for 2011.

Gonsalves also said that there will be an increase in the stamp duty payable on several instruments.

He said the rates were last increased in 2002 and the average increase, approximately 20 percent, is intended to adjust for the change in inflation. The expected revenue yield is EC$250,000 in 2011.

There will also be an increase in professional licence fees that were last increased in 2002 were last increased in 2002, as well as motor vehicle licences which should yield in excess of EC$1.3 million.

The Prime Minister said he also intends to increase fees for registration of documents and surveys by an average of 25 per cent.

“These fees have not been increased in eight years and the proposed increase will keep them in line with normal inflationary trend.”