1999 - 2000 Budget Address

Mr. Speaker, Honourable Members, we meet on the threshold of the year 2000. It will truly be a special year, for it will usher in a happy and remarkable coincidence of the millennium and our 21^st birthday as an independent nation.

This extraordinary coincidence requires special celebration. Indeed, we had a dress rehearsal when, for the first time, we recognized and celebrated our 20^th anniversary of independence on a national basis. For this financial year, Government has allocated EC$700,000 towards our 21^st Independence Anniversary Celebrations throughout the length and breadth of our island nation. It is an occasion for us to bring the Saint Lucian family together, in peace and in community. These celebrations will take place against an international and regional economic environment of mixed prospects, but one which holds much for the united, purposeful and the confident. What are the mixed prospects, of which I speak?

Real economic growth in the world as a whole slowed to 2.2% in 1998, compared to 4.2% in 1997. It was a year of turbulence in international financial markets, marked by a loss of confidence in emerging economies and uncertainty about the prospects for strong growth in both industrialized and developing countries.

The reduction in world demand and output following the financial crisis in East Asia and South-East Asia in 1997, continued during 1998. Russia’s decision in August, 1998 to devalue the Rouble and restructure its debt; Malaysia’s imposition of capital controls, and Brazil’s chronic fiscal problems, undermined confidence in the financial exchange rate and economic systems of developed and developing countries alike. Economic contraction worsened and growth slowed substantially in many countries.

Strong consumer spending, low inflation, a strong fiscal performance and capital flight from other countries, helped the United States to maintain its economic resilience. Nevertheless, its real growth slowed to 3.6%, down from 3.9% in 1997.

Weak exports and lower domestic demand resulted in a fall in the growth rate of the United Kingdom from 3.5% in 1997 to 2.6% last year. In Japan, unemployment rose from 3.4% in 1997, to 4.2% in 1998, while the real growth of 1.4% in 1997 turned into negative growth of 2.8% in 1998. That is, the economy produced 2.8% less output in 1998 compared to 1997.

However, it was not all gloom and doom for the developed countries. Germany, France and Canada all experienced somewhat higher growth in 1998 compared to 1997. In addition, weak global demand and falling oil prices kept inflation low in most developed countries.

Economies in Asia experienced contraction, while many of the economies of Latin America and Africa experienced slower growth. Growth in developing countries as a group, halved to 2.8% in 1998.

The financial crises of 1997 and 1998 have increased the uncertainties facing developing countries. Private financial flows have shrunk and developing countries now face significantly higher costs of external borrowing. In addition, the slowdown in world demand growth has hurt exports of goods and services from developing countries.

For the most part, regional economies performed creditably during 1998. Growth in the service sector, particularly tourism, strong demand in housing and construction, low inflation and better economic management are the factors which seem to have been largely responsible for the resilience of Caribbean economies.

Tourism in the Caricom region continued to expand in 1998. Visitor arrivals grew by 4.9% on average, and the cruise ship sub-sector continued to experience substantial expansion. Residential and tourism construction continued to be the one of the fastest growing sectors in many countries, while manufacturing continued its decline relative to other sectors in most countries. In spite of depressed prices for oil, gold, bauxite and alumina, the mining sector benefited from higher output and productivity, except in Guyana. The financial services sector continued to expand. However, recent moves by developed countries to legislate against tax competition are cause for concern.

The Region’s agricultural sector continued its general decline during 1998. Affected by drought, rice production fell by 7.5% in Trinidad and Tobago and 17% in Guyana. Unfavourable weather had an adverse effect on sugar production, which declined substantially, in all the major sugar-producing islands.

Banana production fell by 15% and 21% in Belize and Jamaica respectively, and recovered somewhat in the Windward Islands after the debilitating drought suffered during the first half of 1998. Quality improvements and the positive effects of the Banana Recovery Plan agreed between the Windwards and the European Union increased exports by 3.2 %. Nevertheless, Windward Island production continues to be less than half our allocated quota on the European Market.

The problems created by the United States and the possibility of a major trade war with Europe, can only exacerbate the uncertainty facing the industry. We are heartened by the continuing support of the European Union and the recent support of the Caricom family, against the harsh and uncompromising stance of the United States. We will not give up this struggle, nor will we flinch from raising our voices in the international community, against injustice and economic victimization visited upon small states by their vastly more powerful neighbour. Our very livelihood is at stake and the world will judge the righteousness of our cause.

On the whole, growth performance was better than the previous year for most Caricom countries. St Kitts and Nevis, buoyed by post hurricane reconstruction, grew by 7%, Grenada by 5%, Barbados by 4.9%, Trinidad and Tobago and St Vincent and the Grenadines by 3.5% and St Lucia by 2.87%. However, Guyana experienced negative growth of 1.8%; Antigua and Barbuda, slowed to 3.8% from 5.3% in 1997; Belize, growth was down from 3.5% to 3%; Dominica, recorded growth of 1.8%, the same as the previous year; and the Bahamas, growth in 1998 was slightly lower than the 3% recorded in 1997. There is also some evidence indicating that economic performance in Jamaica worsened in 1998.

Considerable volatility still exists in global financial markets. This, in turn, prolongs uncertainty about international economic prospects. Consequently, demand for the exports of developing countries has not fully recovered. Private sector liquidity remains depressed, and the cost of external borrowing remains high. Economic survival requires that Caribbean countries continue to diversify their economies, implement prudent fiscal policies, strengthen their economic management, and make use of expanding opportunities created by technology and the "knowledge" economy.

Mr. Speaker, after five consecutive years of weak and declining economic performance our economy is finally showing some signs of recovery.

The policies that were announced last year have succeeded in stabilizing the economy. Economic activity has strengthened, and in 1998 the economy grew by 2.87 %, its most dramatic increase since 1992. This builds steadily on our modest growth last year of 0.6 %.

The resources invested in the banana industry, have impacted positively on the agricultural sector. Banana output grew by 2.6 % to 73,221 tonnes; exports of bananas were, however, slightly less than the quantity of fruit produced. The prime reason for this was an underestimation of St Lucia’s production recovery and a consequent absence of licences to export the excess fruit.

Market conditions were nevertheless conducive, Mr. Speaker. Our fruit was of higher quality. Exchange rates were generally more favourable and the Green Market Price recorded a steady increase to reach £622 per tonne in December. Consequently, our farmers, Honorable Members, received the highest unit price ever paid for bananas.

Our diversification efforts are also beginning to produce results. Increased output was recorded for non-traditional crops and livestock. There was a 50% increase in the export volume of non-traditional crops. The importation of tomatoes was reduced by 20% in response to increased domestic production. Broiler production increased by 97%; and 40% of the demand for bacon, shoulder and leg hams, beef, bacon and chicken burgers is now satisfied by local production.

Overall, output in the agricultural sector grew by 3.9% - a tremendous improvement over the severe contraction of 17.9% experienced last year. Honourable Members will also note that the gains in agriculture were accompanied by a 15% increase in employment in the agricultural sector. This is good evidence of renewed confidence in the agricultural sector.

One sector continues to be worrisome, Mr. Speaker; that is the manufacturing sector, where size and scale are persistent constraints affecting our competitiveness. The structure and orientation of the sector affect our ability to penetrate new markets, and to take advantage of existing opportunities. Consequently, output in the sector contracted by 2.1% in 1998. This follows a marginal reduction of 0.3% in 1997. However, the contribution of Manufacturing to the economy remains significant, employing some 5,350 persons last year. Later in this address, I shall propose measures intended to address the decline in this sector.

Mr. Speaker, when we assumed office in 1997, the construction sector was in a slump. Output had contracted by 6% the previous year and we had to get the sector back on track. I am able to report that the pace of construction activity intensified in 1998, resulting in an increase in employment of 14%.

Expenditure on public sector construction increased markedly; from $80 million in 1997 to $114.7 million in 1998. The Central Government was, of course, the major contributor to that effort. The private sector too, Mr. Speaker, has played a major role. There was significant expansion in commercial infrastructure and moderate growth in residential construction. Indeed, the pace continues. Later, I shall announce more measures to accelerate growth and expansion in this sector.

Tourism is our new horizon. This sector continues to be the major source of growth in the economy. Growth was slower this year at 2.4% but its contribution to the national product remained high at 13%. Visitor expenditure accounted for 71 % of total exports of goods and services in 1998. The tourism sector is, therefore, our primary earner of foreign exchange.

The number of stay-over visitors grew at a rate of 1.5% to reach 252,237, while cruise ship visitors grew by 17.6%. Hotel occupancy increased from 71.4% to 75.3% with the average occupancy levels remaining highest in all-inclusive hotels.

The performance of the stay over category was influenced by arrivals from the United States, the United Kingdom and the Caribbean. Arrivals from the United States, traditionally, the island’s single largest market, increased by 10.5%. This Mr. Speaker, is the result of the increased marketing activity by the industry in the United States market in 1998. Arrivals from the United Kingdom increased by 6%. We have also benefited from increased arrivals from our Caribbean neighbours as our advantage as a shopping destination is increasingly explored. This is an advantage that must be strengthened further by accelerating expansion in the duty free sector. I will revisit this matter towards the end of this address.

St. Lucia continued to benefit from an environment of low and relatively stable inflation. After recording an inflation rate of 0% in 1997, the inflation rate rose to 2.8% in 1998. Increases in prices of local agricultural crops were a significant factor in exerting upward pressure on domestic inflation.

Mr. Speaker, there was a marked improvement in Government’s fiscal operations in 1998/1999, as a result of the new budgetary measures that were introduced during the last financial year. These included both revenue-enhancement and expenditure-management measures, which have promoted an increase in the level of government savings. The current account surplus increased, while a higher ratio of capital expenditure to total expenditure was achieved. The savings to GDP ratio increased to 5.2%, from 4.3% in 1997, while the share of capital expenditure in total expenditure has risen substantially by more than eleven percentage points to 30.8%.

The public debt grew by 17% to $772.5 million. Of this amount, $238.7 million is held by non-central Government public sector institutions, but is guaranteed by Government.

To re-position the economy on a sustainable growth path, it was necessary for Government to invest in the economy at levels that exceeded its savings. Government also assumed or if you prefer, absorbed the debt of SLBGA. Central government’s portion of the debt therefore increased. However, the debt servicing requirements of Government have remained within manageable limits.

The debt service ratio has fallen marginally to 3.2% from 3.3% in 1997. Total debt outstanding to GDP rose from 26.4% in 1997 to 27.0% in 1998. Honourable members will note that these are well within international norms; St. Lucia is well placed to service its existing debt and has sufficient capacity to finance necessary investment in future years.

I turn now Mr. Speaker, to the monetary developments in 1998.

The tight liquidity position throughout 1997 eased with the loans-to-deposit ratio falling by 5.5 percentage points to 95.2% at the end of December 1998. Interest rates remained relatively stable with only a slight upward adjustment on the high end of time deposits with maturities of up to 3-months.

Significantly, Saint Lucia’s external reserves improved appreciably, moving from a net liability position of $6.6 million to a net asset position of $92.7 million at the end of the review period. The net imputed share of the external reserves of the Eastern Caribbean Central Bank also increased by 16%, reflecting an improvement in the balance of payments in 1998.

Mr Speaker, all of these positive indices have been achieved after just twenty-two months, by a Government that the people of St Lucia were told could not manage the economy.

This review invites me to answer the single, most important question. Did we achieve the targets set in the 1998/99 Budgetary Statement?

Mr Speaker, last April, I identified seven specific economic targets that the Government had set itself for the year. At that time, I stressed the importance of setting quantifiable benchmarks to assist us in measuring our fiscal and economic performance. In so doing, the Government and the nation would be better able to evaluate progress towards stated economic goals.

I now invite you to consider our stewardship regarding the achievement of those targets.

For central Government saving, we achieved both the minimum target of 2.5% of GDP and our higher desired target of 5%. The Saving/GDP ratio was around 5.2% and helped finance the capital programme, and service public debt. Our minimum target for the coming fiscal year is 3.0%. This is in keeping with our agreement with the European Union regarding budgetary support.

 

Regarding public sector savings, every indication is that the target of 7% of GDP will be achieved. The final numbers from the statutory and public sector bodies have not yet been collated, but every indication is that we are on course to achieve this target. The target for the new fiscal year is 7.8%.

 

Our loan/deposit ratio target for fiscal year 1998/99 was 95% compared to 100.7% for the previous fiscal year. We had achieved 95.2% by the end of 1998, and all indications are that there has been further improvement as the fiscal year draws to a close. This is an important target to have achieved, since it is an indication of improved liquidity in the banking system as a whole. The target for 1999-2000 is 92%.

 

The target of a Current Revenue/GDP ratio of 29% was not achieved. There are two explanations for this. Firstly, it turns out that the GDP series for the last few years have been revised, and that the base ratios, which we quoted for previous years, were too high. Consequently, our target of 29% was too high. The Revenue/GDP ratio in fact improved from 23.9 in 1997 to 24.6 in 1998. Secondly, our revenue effort still needs significant improvement. We have not yet had a full year’s impact of the measures taken to strengthen collections in the Customs Department and other revenue generating agencies. Bearing all of this in mind, the new medium-term revenue/GDP target to be achieved on a sustained basis is a minimum 26%.

 

The Current Expenditure/GDP ratio of 19.4% that we achieved in 1998 was well within the maximum of 26%, which was targeted. This target will be retained for 1998/99. However, in keeping with our prudent approach on fiscal matters, I have set a slightly more stringent current expenditure target of 25% (maximum) to be achieved and sustained in the medium term.

 

The Capital Investment/Government expenditure target of 30% identified last year, was achieved. The estimated ratio for 1998/99 is 30.85%, up from 19% in 1997/98. However, there is much work to be done to improve the capacity of Ministries to implement their planned capital programmes. The minimum target remains at 30%.

 

The targeted growth rate of 2 to 2.5% has been surpassed. We in fact estimate that the real economy grew by 2.87%. This is virtually in keeping with the estimates of regional and international organizations. Our target growth rate for 1999 is 3%.

 

In summary, five out of seven targets were achieved, one is expected to be achieved, and due to extenuating circumstances, we failed to achieve one. We have reviewed some of the targets for this new fiscal year and the years following.

Mr. Speaker,

It is now time to present the estimates of expenditure for 1999/2000, and to explain how the budget is to be financed. Total expenditure amounts to $744.4 million. Of this, 44.4% or $330.7 million is for capital investment, 51.5% or $383.5 million is for recurrent purposes, and 4.1% or $30.2 million is for meeting principal repayments on the public debt.

Last year, total budgeted expenditure was approximately $634 million, of which 37.6% was earmarked for the capital programme. Our plan this year is to increase the percentage of expenditure allocated for investment to 44.4%, in keeping with our growth and developmental objectives.

Total Government expenditure will be financed from Current Revenue of $532.3 million, from Capital Revenue of $5.0 million, and from Grants and loans of $207.1 million. I must point out that all the loans and grants are earmarked for capital expenditure, as is the amount of $123.6 million from recurrent revenue, after allowing for recurrent expenditure and debt re-payments.

The Budget is designed to achieve the fiscal targets for the current surplus, current spending out of G.D.P. and the revenue effort that I described earlier. However, this year revenue collections will be boosted by $36.0 million, representing the net reimbursement of advances made by the Government on behalf of WASA, to local utility companies and regional and international creditors.

The re-structuring of WASA involves an investment of $40 million at 9.8% interest, by the Royal Merchant Bank and Finance Company of Trinidad and Tobago, part of which will be used to meet WASA’s indebtedness to Government. The Government has agreed to meet the interest and transaction costs of just under $4.0 million for the first year only, after which a re-structured WASA/WASCO will have to make appropriate arrangements to service all its liabilities. These arrangements will be determined during the re-structuring exercise in which the Bank is willing to be involved, given its financial expertise. The Caribbean Development Bank has agreed to provide technical assistance to WASA in its transition from a statutory body to a corporation.

I have informed WASA that it must assume responsibility for its affairs, and that the government will not write off the advances of $40 million made on its behalf. However, Government will not saddle WASA with any interest burden from the accumulated debt of $40 million. In addition, WASA or its successor, WASCO, will receive a lump sum of around $9.8 million to meet re-structuring expenses, including critically needed funds for capital works. Not counting any accumulated interest from the total advances of $40 million, or the interest cost for 1999-2000, the net revenue from this arrangement amounts to $26.2 million for the fiscal year (i.e. revenue of $36 million less the estimated transfer to WASA/WASCO of $9.8 million).

Returning to the revenue effort, and focussing on the usual recurrent revenue items, we expect to achieve our revenue target of 26% of GDP. Also, the distribution of tax and non-tax revenue to total current revenue is somewhat different from that which obtained last year. Tax revenue accounts for 87.3% of revenue, compared to 88.6% last year, while non-tax revenue accounts for 12.7% compared to 11.4% last year. Amazingly, the Government is accused of being hungry to increase taxes, yet the proportion of tax revenue to total revenue will decline by 1.3%. I will shortly examine detailed revenue and fiscal measures and the underlying objectives that they are meant to achieve.

As far as recurrent expenditure is concerned, wages and salaries together account for around 51% of the current budget compared to about 52% in last year’s budget. This excludes allowances for wage settlement for public workers. The wage bill is more than half the size of the total recurrent budget, and I have made it clear for some time now, that the Government can only pay what the country can afford.

The offer which the Government has made to public officers means that an estimated $14.8 million will have to be paid this coming fiscal year. A further $10.1 million will have to be paid the next fiscal year and an additional $1.8 million will be paid if the economy grows by more than 5%. Overall, then, $26.7 million will have to be found to pay public officers based on Government’s offer.

Mr Speaker, since borrowing money to meet such recurrent expenditure is tantamount to fiscal recklessness, there are only two other ways to meet any demand for salary increases over and above Government’s offer: additional taxes or retrenchment. It is not the policy of the Government to increase unemployment. And you know Mr Speaker, how I would hate to increase taxes!

As I pointed out earlier in my review of the domestic economy, our debt ratios continue to be relatively low. Despite transferring the debt of the St Lucia Banana Growers Association from a contingent liability to a central government debt, the amount set aside for debt service this year is around $62 million. This compares favourably with $66.5 million last year. One of the main reasons for this is the higher yield achieved on sinking fund investments last year, which reduces the amount required to be set aside this year. We will continue our efforts to manage the public debt and fiscal accounts with prudence and responsibility, as we consolidate the financial reforms put in place over the last year and a half.

$M

CURRENT REVENUE ……………………………………………… 532.3

CURRENT EXPENDITURE (Excluding Principal On Debt)…. 383.5

CURRENT SURPLUS ………………………………. 148.8

LESS DEBT PRINCIPAL PAYMENTS …………………………… 30.2

CURRENT SURPLUS AVAILABLE FOR

CAPITAL INVESTMENT ………………………….. 118.6

CAPITAL RECEIPTS ……………………………………………… 5.0

LOCAL RESOURCES AVAILABLE FOR

CAPITAL INVESTMENT ………………………… 123.6

GRANTS AND LOANS ……………………………………………… 207.1

TOTAL CAPITAL FINANCING …………. 330.7

TOTAL CAPITAL EXPENDITURE …….. 330.7

0

Permit me now, Mr Speaker, to highlight some areas of investment expenditure of particular interest.

The agencies of Parliament, including the offices of the Governor-General, the Legislature, the Service Commissions, and the Electoral and Audit Departments, will receive, an aggregate increase of $179,000.

Some $15.7 million has been allocated for General Services, which include the Office of the Prime Minister and the Ministry of the Public Service. This allocation includes an amount of $10 million for land acquisition obligations, an increase of $5 million over last year, and $700,000 towards preparation for the observance of St Lucia’s 21^st Anniversary of Independence.

The Economic Services Sector will receive approximately $220 million for capital expenditure in this financial year. Portfolios under this sector include:

the Ministry of Agriculture, Fisheries, Forestry and The Environment;

the Ministry of Commerce, Industry and Consumer Affairs;

the Ministry of Communications, Works, Transport and Public Utilities;

the Ministry of Finance and Planning;

the Ministry of Foreign Affairs and International Trade; and

the Ministry of Tourism, Civil Aviation and International Financial Services.

Capital inputs into the Economic Sector include:

$73.1 million for the Ministry of Communications, Works, Transport and Public Utilities, particularly to undertake badly needed road rehabilitation. This is an increase of 15.7% over the 1998/99 allocation.

 

$98.2 million for projects under the Ministry of Finance and Planning, including poverty reduction, disaster mitigation and solid-waste management.

 

$28.4 million for the Ministry of Agriculture, Forestry, Fisheries and the Environment for an intensification in its work in agricultural diversification and natural resource management.

 

$17.6 million under the Ministry of Tourism, Civil Aviation and International Financial Services. This allocation will be used primarily for marketing and promotion, product development, nature heritage programmes in selected communities and developing the international financial services sector.

 

The economic sector also has provision for increases in operating costs of $1.3 million or 12.4% for the Ministry of Foreign Affairs and International Trade, and $862,000 or 70.5% increase for the Ministry of Tourism, Civil Aviation and International Financial Services.

An amount of $67.6 million has been allocated to the Social Services Sector, for capital projects, compared to $42.3 million last year, an increase of 59.8%. Portfolios under this sector include Community Development, Culture, Cooperatives, Local Government, Education, Human Resource Development Youth and Sports, Health, Human Services and Gender Relations.

Capital inputs for the Ministry of Community Development, Culture, Cooperatives, Local Government and Ecclesiastical Affairs increased by $769,000 or 14%; for the Ministry of Education, Human Resource Development, Youth and Sports, $22 million or 71%; and for the Ministry of Health, Human Services, Family Affairs & Gender Relations, $2.4 million or 40%.

Operating costs increased by $776,000 for the Ministry of Education, Human Resource Development, Youth & Sports stemming primarily from contractual obligations under the World Bank/CDB’s Basic Education Reform Project.

Against the macro-economic environment just developed, I will turn now, to the Budgetary Proposals. This Budget Presentation is woven around three inter-connected themes: Institutional Reforms, Economic Consolidation and Social Recovery. Let us now examine the first theme, Institutional Reforms.

Mr. Speaker, the 21^st Century is undoubtedly the era of information technology. Knowledge and information have now become economic products as well as primary factors of production, and it is imperative that our education system addresses and accommodates itself to that reality. The Government of St. Lucia, conscious of the need to equip our children for survival in this competitive information world, has conceived the "Millennium Project".

The Millennium Project involves the incorporation of information technology into the education system of St. Lucia over the next three years and has two major components:

The incorporation of information technology in the school curricula at all levels.

 

The strengthening of institutional administration in the education system by providing principals and other education administrators with the appropriate information systems in order to assist in decision-making.

 

This challenge will be incrementally but assiduously pursued and will prioritize the provision of computers and the introduction of information technology in the secondary schools. In the long run, the project will:

Allow establishment of state-of-the-art computer labs at Sir Arthur Lewis Community College and the development of computer intensive campus-wide networks at the College;

Equip all primary and secondary schools with computer labs, starting with the secondary schools and ultimately, establishing a ratio of one computer for every twenty students. This infrastructure will also be used for training of persons in adult and continuing education programs;

Establish training facilities with adaptive technologies for students with various forms of disability at special education centers;

Establish computer playgrounds to extend information technology education to students at the pre-school level;

Install computer labs at public libraries for use by students outside of regular school hours and for use by the public;

Connect schools to each other, to other relevant locations and to the internet;

Train all teachers in the use of information technology as an instructional tool;

Train specialist teachers in computer science education to work at the secondary and tertiary levels;

Provide basic training in computer maintenance and technical support to teachers;

Review the curricula for all subject areas and make appropriate modifications in order to incorporate effective use of Information Technology;

Implement appropriate information technologies to strengthen school administration, monitor student performance and to assist teachers in carrying out routine functions.

 

The Ministry of Education, Human Resource Development, Youth & Sports is establishing the infrastructure for this project. The new government telephone system will enable the Ministry to put in place its own server, connected to a leased line from Cable & Wireless, so that eventually all schools and libraries will be able to dial in to the Internet through the Ministry.

The introduction of this technology, Mr. Speaker, requires that the matrix of hardware, software and user be carefully delineated right from the start. And that is why, in this financial year, the Ministry of Education as we will establish the prototype a pilot in a few secondary schools, before the project rolls out to the entire system. Half a million dollars ($500,000) is allocated in the capital expenditure for computer labs and the Millennium Project start-up. Our approach is to first get it right, establish a viable working model and then apply this throughout the system. This expenditure will also involve the review of appropriate software for use in schools, and the training of teachers in the use of the technology. The Curriculum & Materials Development Unit (CAMDU) has already started work developing experimental local software based on the local curriculum so that eventually, the national curriculum will be available on the Ministry intranet for use in schools and for self-paced instruction by students.

Mr. Speaker the year 1999 started off not with the usual greetings of prosperity for the New Year, but with concern as to what the year 2000 will bring. Everywhere there is concern about the potential disaster created by the computer problem known throughout the world as the ‘Y2K’ or ‘Millennium Bug’ problem. In St. Lucia there is need for us to be concerned about the problem because computers have become an integral part of our lives. We have given some attention to this problem, and I would like to inform the Honourable House of the efforts that the Government has been undertaking.

The Government has set up a National Task Force on the Y2K problem in order to spearhead the efforts of achieving Y2K compliance. The task force comprises senior Public Officers, and a representative of the Chamber of Commerce, who have the technical expertise to ensure that Y2K compliance is achieved.

From the public sector point of view, the Task Force has undertaken a review of all major users of information technology and has attempted to determine the state of readiness of these users. The Task Force reports that the following major users are Y2K compliant:

The Financial Management System - FINMAN;

The Inland Revenue Department’s Standard

Integrated Tax Accounting System – SIGTAS;

(c) The Customs and Excise Department’s entry processing system - ASYCUDA

 

However, the following systems are not Y2K compliant as yet:

The Electoral system;

The Driver License and Vehicle registration system;

The Traffic Lights Control systems.

 

Provisions are being made in this budget for ensuring that both the Electoral and Traffic Lights Control systems become Y2K compliant, while the Task Force is investigating an inexpensive approach to ensuring compliance for the Drivers License and Vehicle registration system.

The Task Force has solicited from Private Sector organizations, statements indicating their level of compliance, and to date, the Task Force has received statements from the following organizations:

St. Lucia Electricity Services Ltd.

The Water and Sewerage Co. Ltd.

St. Lucia Development Bank

Cable & Wireless

 

It is particularly heartening to see that our utility companies have all indicated their awareness and readiness. I am sure that this brings comfort to individuals who are concerned as to whether St. Lucia will be in a state of darkness with no water or communication facilities after midnight December 31, 1999.

Mr. Speaker, in our Contract of Faith, we stated our intention to "Upgrade the airport arrival and departure facilities by ensuring that they are staffed with customer friendly immigration and customs officials not only for tourists, but also for citizens." Consistent with the article of faith, I signaled sometime ago to this House, Government’s intention to embark upon a programme for the restructuring of the Immigration Services. The restructuring plan envisages a "civilianized" Immigration Service, operated by civilian personnel rather than by the Police Officers. One effect of this is to free resources, both material and human, for use by the Police in the ongoing war on crime.

Already, a comprehensive review of the existing system has been undertaken and an assessment made of our needs and requirements. At present, the constituent elements of the system are being designed, but there is yet much more to be done. New legislation will need to be drafted and enacted; operations and procedures manuals will have to be prepared; and most importantly, staff will have to be carefully recruited and trained.

Provision has been made in the Estimate for the sum of $325,000 to facilitate the establishment and operation of the new service.

In the course of this financial year, Government will accelerate the pace of reforms in the Customs Department, inspired, as already known, by the Customs Reform and Modernization Project. This is a strategic change programme aimed at improving all aspects of Customs operations. The United Kingdom Government, through its Department for International Development, is funding the reform. The British Government has allocated EC$20 million for this project.

In January 1999, based on the reports of four United Kingdom consultants, Cabinet approved a restructuring of the Department as well as seventy-two (72) recommendations in the areas of:

Anti-Smuggling

Computer Audit

Management and Organization

Fiscal Procedures

 

The cost of implementation of the recommendations is $765,418.00. Provision has been made in the estimates for the recruitment of thirty-seven (37) additional customs officers to enhance the performance of the Department and to facilitate the changes identified in the modernization programme.

Since the inception of the Project in June 1998, the Department has had eight (8) revenue seizures related to the under-invoicing of goods. Fines totaling $38,300 have been imposed by the Courts and prison sentences totaling thirty-one (31) years were handed down.

Those persons engaged in the trade of importing goods are advised to desist from the temptation to engage in under-invoicing and to declare the true value of imported goods to the Customs & Excise Department. To allow those who have breached the law to atone for their transgressions, Cabinet has agreed to grant an amnesty to importers for under-invoicing in respect of entries from 1996 onwards, for a period of six months. I urge defaulters to make use of this amnesty.

Mr Speaker, I have always been uneasy about institutions that offer advice and do not themselves, experience the identical challenges faced by those who are expected to survive by the advice that is extended. It is in that context that we must determine the future of the Small Enterprise Development Unit (SEDU).

The Small Enterprise Development Unit has performed well during the year under review. Its major achievements include:

The preparation of 79 business plans for entrepreneurs;

Conducting three-month Small Business Management courses at Castries and Vieux Fort for approximately 70 existing and potential small businesses;

Assisting 15 small businesses in Market and Product Development;

Assisting 109 small businesses to register;

Assisting with the development of an Accounting Centre at the National Research and Development Foundation (NRDF).

 

In fact, SEDU bears the main institutional responsibility for the promotion of the small business thrust and must therefore be up to the task to which it has been assigned.

The strategic role of the Unit, however, requires that its immediate environment be conducive to its operations. In this context, a review of the Unit’s existing structure is being undertaken, to determine whether it is more appropriate for the structure of the Unit to be transformed into that of a Small Business Corporation, with the autonomy which permits it to function with an eye on urgency and unrestricted by the restraints inherent in its present position as a unit within a Government bureaucracy.

A consultant has been engaged to examine this issue and to make recommendations on how the transformation could be effected in the course of the financial year.

Mr. Speaker, there is no doubt that STEP was a tremendous success. Thousands of persons who could not find employment found some solace in the few months of STEP. -But even while we were establishing the programme, we reminded the nation that it was only a temporary programme. We understood that STEP had to give way to a comprehensive, and integrated approach to combating the unemployment problem. The time has arrived for us to take another step in that direction.

On completion of STEP, the Government of St Lucia was left with a sum of approximately $1.6 million. Of this sum, we propose to utilize $1 million to establish an Employment Resource Centre. In creating this Centre, I wish to recognize the efforts of our social partners, all of whom contributed immensely to the conceptualization of the proposal.

The establishment of an Employment Resource Center is a reflection of the views and experiences of all the organizations that participated in the management of STEP and others that have indicated an interest in shaping a national response to unemployment.

This initiative will not succeed without the active involvement of our Social Partners. To facilitate constructive interaction with our Social Partners, Government proposes to establish the Employment Resource Centre as a limited liability company with a Board of Directors comprising directors drawn from:

The St Lucia Chamber of Commerce, Industry & Agriculture;

The St Lucia Employers’ Federation;

The Trade Union Movement;

The St Lucia Industrial and Small Business Association;

The National Youth Council;

The National Insurance Scheme; and

The Government of St Lucia

 

Mr. Speaker, every effort will be made to ensure that the approach of the Centre is flexible and can cater to the diverse needs and sensitivities of the unemployed. It will be able to assess the capabilities of job seekers. It will provide opportunities for the unemployed to develop their skills, both attitudinal and technical, thereby enhancing their employability. It will train employees for foreign investors who request a specialized workforce. It will offer a wide range of information on the labour market, educational institutions and financial assistance for the use of prospective job seekers and persons seeking to be self-employed; and it will offer some work experience for the newly employed while permanent employment is being sought.

This Centre, Mr. Speaker, is another undertaking by this Government in the formulation of a long term, sustainable programme of human resource development and employment creation in Saint Lucia. I commend it to this Honourable House.

I have indicated previously that each budget presentation will focus on an issue of major social and economic significance to the nation. The issue for this budget is one that affects each one of us; it is one of the three essential basic needs, it has a significant influence on social and economic development; and for many fortunate persons, it represents the largest major investment that they will ever make. I refer, of course, to the issue of Shelter, Housing and Home Ownership.

Housing Stock and Shelter Developments

There is no denying that over the past twenty years St. Lucians have been able to increase the housing stock and improve its quality. This is illustrated by the many land and housing developments around the northeast corridor of the country. In addition, thanks to the buoyancy of the banana industry and the remittances from St Lucians resident overseas, new suburbia have developed around some of our villages. However, side by side with these developments are a number of tenantries where our citizens and their children live in absolute squalor, without basic and decent housing and even more distressing, without proper sanitary facilities. The tenantries and slum areas in Foux-a-Chaud, Fond le Grande, Marchand, Leslie Land and Morne du Don in the Castries area, Coin d’Lanse in Soufriere, and the Mangue in Vieux Fort, are but a few examples. Additionally, the central sections of many of our towns and villages need urgent upgrading.

But what are the facts? According to the last census, St. Lucia’s housing stock was 40,000 units. Seventy-two percent (72%) of the units were owner-occupied, 22% rented. Only 37% were built after 1980. Of the existing stock, 49% of the houses had pit latrines, 30% had septic tanks, 8% were connected to a sewer system, while 9% had absolutely no sanitary facilities. Ninety per cent (90%) of the houses had electricity and only 75% had piped water. Wood is the major building material but the newer trend is towards masonry houses. Houses, too, are larger, with newer houses having five rooms on average, compared with three for older houses.

And what of the future? St. Lucia needs 1,500 units annually: 600 to take care of population increases and 900 to replace old, decaying and substandard accommodation. At the same time, only about 500 residential building permits are approved each year, meaning that there is a housing gap of 1,000 units per year and these are largely in the low income category. This means that if the low income housing situation is not addressed with some urgency, St. Lucia will experience "a tale of two cities", with one third of the population living in relatively comfortable accommodation whilst the majority have to live under sub-standard conditions. This is a totally undesirable social situation, pregnant with despair, hopelessness and conflict.

Today, under current conditions, 67% of St. Lucian households cannot afford to own a 2 bedroom, 800 sq. ft masonry house on 3,000 sq. ft. of land, costing about $120,000. To purchase such a house the buyer would need down and upfront payments of $24,000 and a monthly mortgage payment of $1,100. These payments would require a household income of $3,700. But only about 30% of households earn such minimum income levels.

Government, through its various social and economic programmes, is working assiduously to increase employment and productivity levels in the economy in order to enhance householders capacity to own their homes.

Government’s efforts to increase the accessibility of low income households to affordable housing, will focus on two broad areas: increasing productivity, income and employment; and attempting to reduce the cost of housing construction, interest rates, other financial costs and other upfront costs. If all of this could be achieved simultaneously, then basic home ownership could be available to almost 90% of households – a dramatic improvement on the current figure of 33%.

Government’s Role

As a matter of policy, Government will not intervene in the housing sector in any area that is adequately handled by the private sector and for which the private sector has both the desire and competence to be involved. Thus, neither Government, nor its agencies, will be involved in building houses for the middle and upper income markets as these market segments are currently very adequately served by the private sector (even though the costs there leave much to be desired). Even in the low-income areas where the Government plans and expects to intervene, these interventions will be in cooperation with the private sector.

Within this framework, Government’s involvement will be in three broad areas:

policy formulation, physical planning, regulation setting, and compliance monitoring for the housing sector as a whole;

coordination, execution and encouragement of low income housing developments and the provision of indigent housing for the unfortunate who do not have any means to afford basic home ownership; and

resource mobilization to finance the needs of low income families for housing, since they would neither have access to, nor could afford, conventional finance on commercial terms.

 

In order to give effect to the new policies and strategies, a new institutional structure has already been enunciated and its legislative mandate is being prepared. At the apex of these institutional arrangements will be Policy Formulation, Town and Country Physical and Economic Planning, Regulation and Standards Setting and Compliance Monitoring which will be provided by the Central Government and coordinated by the Ministry of Finance and Planning. The second element of the institutional arrangements will be the amalgamation of the current housing delivery institutions of the Housing and Urban Development Corporation and the St. Lucia Housing Authority into a single more effective institution to be called the National Housing Corporation. This new entity will be the implementing agency for Government’s housing initiatives including delivery of low-income housing units and developments, and the management of Government’s Land Bank and subsidized rental property for indigent housing. The proposed third part of the institutional arrangements will be the establishment of a National Housing Trust to mobilize long term domestic resources to help finance, on a sustainable basis, low income housing. Whilst the entity will be an independent body with its own Board of Directors, it is expected that it will work with the National Insurance Board to mobilize resources on terms mandated by statute.

The implementation of such a programme at a time when there are so many investment initiatives planned for execution can put pressure on the available building skills in the country, resulting in either increased cost of construction and/or project delays.

To help address this problem while helping to alleviate the chronic unemployment situation in this country, particularly amongst school leavers, Government intends to utilize the newly formed Employment Resource Centre to develop a Skills Training and Apprenticeship Programme. This programme, to be developed in conjunction with the SALCC and the NHC, should benefit about 300 young persons, thereby making that number of skilled persons available over the next five years. The cost of this programme is estimated at about $3 million over a five-year period.

The programme will be so managed that the training and apprenticeship facilities will be well distributed throughout the country. It will provide the unemployed and/or school leavers with training in such building trade skills as carpentry, masonry, plumbing and electrical wiring. The proposal is to select willing and unemployed school leavers who have the requisite aptitude to work as apprentices on construction sites under the supervision of skilled craftsmen. Their remuneration (which would be about 30% of the wages of a skilled craftsman) would be borne by the site contractor but Government would meet the cost of skills training at SALCC for these apprentices on evenings and weekends. Discussions are to be held with SALCC to establish the mechanisms for facilitating such training activities within the institution’s framework.

The amount of financial resources that will be needed to address the housing problem will not be available from donor and institutional funding sources. It would not be prudent to borrow these resources from external market sources as these funds would be costly and would displace borrowings for other self-liquidating productive and supportive infrastructure projects that generate foreign exchange. Hence a large part of the funding has to be generated from local sources by redirecting existing available resources and/or increasing the level of savings. One avenue that has been successfully utilized in Jamaica and recently implemented in St. Kitts-Nevis is the establishment of a National Housing Trust. This proposal is under consideration in St. Lucia and would involve all employees making a voluntary contribution of about 2% of income, which would be reimbursable with interest for housing related purposes after 10 years in the trust fund. Progressive employers would be encouraged to match their employees’ contributions, which would be vested in these employees if they provide 10 years of service to the employer and with these amounts being made available to the employee after the contributions have remained in the trust for ten years. The contributor may use his savings for housing related payments at any time and would be allowed to borrow up to 50% against the amount saved.

Mr. Speaker, Honourable Members: I have made it clear that Government will concentrate on low income housing and leave the middle and upper income sectors to the private sector. Of course, Government understands that it must establish and maintain an environment that encourages investment by private sector developers.

Two measures have been introduced to assist private sector investment, one by the previous Government and the other by this administration.

In 1991, "Cabinet agreed that in respect of any developer or group of developers undertaking the construction of ten (10) or more houses in a development within the range of $15,000 to $150,000 (house and land) to grant waiver of import duty and consumption tax on building materials imported for that purpose."

The 1991 policy did not achieve the desired result. Some developers experienced problems in raising finance from our financial institutions while others could not offer the required collateral to the Development Control Authority for infrastructural works.

Government will maintain the underlying principle of the 1991 policy intervention, but refine it in two ways. Firstly, it will reduce the number of houses to five (5) or more houses in a development, and secondly, broaden the price range to $15,000 to $200,000 per house.

In order to assist those developers who cannot offer collateral in cash deposits to ensure completion of infrastructure, Cabinet has agreed that:

the Developer be given the option to offer collateral in the form of land as surety to the Development Control Authority for infrastructural works;

that Stamp Duty, payable to the Inland Revenue Department, in connection with the Deed of Donation from the Developer, in favour of the Development Control Authority be waived;

that Land Registration Fees, in connection with the Deed of Donation from the Developer, in favour of the Development Control Authority be waived;

that Stamp Duty, payable to the Inland Revenue Department, in connection with the Deed of Transfer from the Development Control Authority to the Developer be waived;

that Land Registration Fees in connection with the Deed of Transfer from the Development Control Authority to the Developer be waived;

that Vendors Tax be waived on the Deed of Sale by the Development Control Authority to the public."

 

Government intends to embark on a massive low-income housing programme over the five-year period. This programme will focus on households with income of under $30,000 per annum or $2,500 per month. Housing for households above this income range will continue to be provided by private developers and through the HUDC/NHC normal housing progammes.

The following three programmes have been identified: Sites and Services, Tenantry Upgrade and Squatter Relocation, and Home Repair, Improvement and Retrofitting. Government’s proposals on Indigent Housing will be announced in due course.

I will give a broad outline of each programme.

This component of the programme, over the five-year period, will:

1. Develop over 200 acres in at least ten sites in appropriate urban and rural areas in St. Lucia. These sites would be sub-divided into about 1,000 building lots each of at least 3,000 sq. ft.. The necessary infrastructure as roads, water, electricity and sanitation services would be provided

 

2. Construct on each lot, some form of basic housing, depending on the needs, wishes and capacity of the low-income household to pay. Each household will be given the option of determining what they wish to build on their site, when, and by whom?

 

3. Develop land around these rural sites that could be rented to households who may wish to engage in some form of very small scale high value agriculture such as rabbit and chicken rearing, vegetable farming, floriculture and aquaculture. Develop around the urban sites also small spaces that could be used as workshops by these households to pursue such income generating activities as dress making, agro processing, repair services, retailing and crafts all in an effort to help these households earn some income.

Each lot will be sold at about $6 per sq. ft. but the homeowner can pay as little as $4 per sq. ft. so as to reduce his cost with the HUDC/NHC retaining the other $2 per sq. ft. in equity which will be payable only if the home owner sells the house. The low-income household can request the NHC to build homes no larger than 800-sq. ft. on their behalf.

Financing for these homes will be arranged at interest rates which will reduce the cost of servicing a 20 year mortgage from the normal $1,200 to as low as $700 for eligible applicants. In fact, the interest rate on these mortgages will vary between 6.5% and 11.5% depending on the level of average household income. Under this component of the programme, an eligible low income family earning $2,400 monthly will be able to acquire a two-bedroom masonry house, which would normally cost $120,000 with land, for a down payment of about $5,000, which is inclusive of fees, and a monthly payment of about $600 repayable over 20 years. Similarly, an eligible low income family with a monthly income of $1,500 would be able to purchase an 800 sq. ft. wooden house for $55,000 with a complete down payment of about $3,500 and a monthly payment of $495 for 15 years.

This Sites and Services Programme is projected to cost about $105 million, with the financing coming from borrowed funds. While the Government and/or the implementing agencies will be borrowing from the market or aid agencies, the project is expected to be fully self financing as all beneficiaries will be required to meet all relevant costs. Therefore, financing is not projected to be a burden on the Government.

I have already alluded to the many squatter and tenantry settlements and shantytowns in St. Lucia. In these cases, households have occupied lands, largely as tenants, on which many landlords have not provided the basic services. This clearly demonstrates that people in search of accommodation are doing as much as possible to secure proper accommodation but are limited in how far they can go because they either do not have title to the lands that they have been occupying for years, if not generations, or because the landlord has not put in the essential basic infrastructure. Some of these slum areas are unsafe, unhealthy and a disgrace to our image, and Government intends to deal definitively with this problem.

Government has identified tenantries in areas such as Faux-a-Chaud, Marchand, Fond le Grand, the Mangue, and Shanty Town, among many others, which either need upgrading or a relocation of tenants to more suitable and appropriate locations.

Over the next five years, Government intends to upgrade tenantries and relocate tenants from areas that are either unfit for human habitation or where better economic use could be made of the occupied lands. This component of the overall housing programme is expected to benefit approximately 3,000 households across St. Lucia and will involve:

(a) Acquisition of the necessary tenanted lands where the private sector landlord is either unwilling or unable to develop it, and compensating these owners with either cash, Land Bonds, or even equitable land exchanges.

 

(b) Development of these sites by demarcating house lot boundaries, footpaths and roads, and by putting in the necessary basic services such as street lighting, water, sanitation services and community facilities wherever possible.

 

(c) Sale of the developed and improved house lots to the existing tenants at an appropriate cost, so that they can have title to the lands that they occupy.

 

(d) Negotiations with domestic financial institutions to assist these households with financing to help acquire the serviced lots and so improve their shelter situation.

 

This component of the programme, which should upgrade about 600 households per year, is expected to cost about $12 million over the five-year period and will go a long way to address the housing rehabilitation and replacement problems that I referred to earlier.

The quality of our housing stock has deteriorated more rapidly than it should have, not only because of the failure to provide services but also because of a failure to effect timely maintenance. Moreover, periodically and seasonally, houses constructed at considerable cost and sacrifice are damaged or destroyed by natural disasters because appropriate design and construction techniques were not practiced. Towards addressing this problem, Government, in association with the SLDB and other public-spirited financial institutions, will be requested to institute a flexible loans scheme to support all households with home repair, improvement and retrofitting. Support will be provided to those who are compelled to rent lands to construct their homes. In the latter case, homeowners will be encouraged to borrow to help secure their homes from the ravages and damages that natural disasters can and do wreak.

As part of this programme Government is expected to advertise minimum design and construction standards and to require architects, draughtsmen and contractors to adhere to these standards.

The HUDC/NHC, which normally builds an average of 120 new units per year, is projected to deliver 150 new units annually around St. Lucia over the next five years. These units, which are expected to cost between $90,000 and $150,000, are in addition to the other programmes described earlier.

The measures that I have just described are designed to meet the objectives of:

increasing the quantity and improving the quality of the housing stock;

making the ownership of basic housing more affordable for a much larger proportion of households in St. Lucia by reducing home ownership acquisition costs;

discouraging conspicuous consumption in housing; and

providing reasonable relief as and when needed.

 

 

The magnitude of what is needed to address the housing problem is much beyond the capacity of the Government to provide, and therefore requires the cooperation of all in the society to address what is a chronic social problem that should be a scar on all our consciences. In particular the following groups namely, employers, financial institutions, the legal community, and the ECCB as a monetary authority are being called upon to cooperate with Government to contribute to this national effort. This cooperation, while it addresses a social problem, has very significant and positive effects on the economy that will redound to the benefit of all, including those who would have contributed to the relief effort. The direct and indirect economic stimulus of this programme, the satisfaction, commitment and empowerment which home ownership provides, the positive impact of better quality housing on productivity and the need for, and use of, social services all contribute to economic growth, national cohesion and social peace.

It is against this background that I present these proposals and appeal for your understanding and cooperation.

Mr Speaker, Honourable Members, allow me, now, to turn to the Tax and Incentive Proposals that will excite these developments.

Government has already taken the first step and enacted the necessary legislation to exempt from income tax up to $6,000 of income per year saved by would-be first home buyers subject to it being saved regularly for a five year period. This legislation was enacted a few weeks ago. At least one financial institution is preparing to provide a guaranteed mortgage programme under this initiative to facilitate such savers

Exemption of Select Power Tools from Duties and Taxes

In order to reduce the drudgery in the use of manual tools, improve the productivity of building technicians and at the same time encourage more "Do-It-Yourselfers", the Government will exempt select power tools such as drills, saws, planes etc, intended for home and business use, from import duties and consumption taxes.

I now turn to the tax and incentive proposals to benefit low-income households, that is, households with income between $10,000 and $30,000, with no member earning more than $15,000 and with no income earner under 25 years of age. These persons would qualify for the following benefits on land and house costing no more than $90,000 and constructed under the coordination of, or in association with the NHC:

(a) Import duty and consumption tax rebates on materials used in the construction;

 

(b) Exemption from stamp duties on mortgages and transfers of titles; and

(c) A rebate of corporate tax payable by financial institutions equal to the interest subsidy below 10% provided for eligible mortgages and properties subject to a minimum interest rate of 6.5%.

 

In addition, the Government will seek the following concessions for eligible low-income families and for eligible properties from:

The Bar Association, a reduction in the cost of legal fees on executing mortgages and transfers to $500 per property - a maximum saving in $3,000 in initial costs. I have already written to the Bar Association requesting their support and agreement. I await their response.

 

(b) The ECCB, an agreement to exempt funds invested in eligible mortgages from the non-interest bearing reserve requirements subject to a maximum of 25% of normal reserve requirements. This would serve to reduce interest rates by about 1% per annum, at least in the initial year.

 

As a result of the combination of these measures, the down payment and monthly payments on a typical two-bedroom would fall by as much as 75% and 50% respectively to about $5,000 down payment and $600 in monthly payment and would result in as much as an additional 35% of households in St. Lucia becoming eligible to afford basic home ownership. Unlike the past, this package of measures benefits all segments of the society.

WHAT WILL BE ACHIEVED?

What then, will be achieved by this programme?

Government’s Housing Programme will FOR THE FIRST TIME have the following features:

- For the first time Government’s housing programme, together with private sector efforts, will meet all the projected replacement and new housing required for population growth.

 

- For the first time Government’s housing programme will focus exclusively and specifically on catering to the needs of the low-income and the lower middle income families.

 

-For the first time Government’s Housing Programme will have benefits not only for the middle and upper income tax payers but will be available in different forms for all income groups.

 

- For the first time and despite these initiatives, the financial burden on the Government will be manageable. This is possible because of the way the programme was designed, i.e. cost recovery from all, but with gains being achieved through efficiencies and cooperation from different social partners.

 

- For the first time Government’s low income housing programme will allow low income families the choice of determining the type of house that they would wish and/or afford.

 

- For the first time the Government’s housing programme will not only focus on building new units, but will work with existing households to improve their housing conditions and to secure title and hence security of tenure for the parcels of land that they currently occupy.

 

- For the first time Government’s housing programme, particularly for low income families, will have an income earning component to give homeowners some access to small parcels of land to engage in high value agriculture; and providing work space which homeowners could rent to develop such small scale enterprises as dressmaking, electronic repair, crafts, agro-processing and catering services.

 

- For the first time Government’s Housing Programme will be integrated into a Skills Training Programme involving the Employment Resource Centre.

 

Mr Speaker, it is pointless to speak about provisions for housing if people cannot get access to land. Owning a plot of land allows entry and participating in the economic system. One can mortgage property, use it to purchase furniture, secure loans for educational development, and enter into business activity. In effect, the ownership of land reduces, and in some cases, eliminates social and economic marginality.

St Lucia has inherited a colossal problem of squatting. The problem is so huge, so large, that even the Government appears impotent in the face of it.

Squatting is initiated by a number of reasons. People who have no where to turn, resort to the easiest solution - occupy available Government lands.

In some communities, Government land has been occupied by generations of the same family. Indeed, some have constructed enviable homes albeit without title to the land. These homes have actually added to the value of the property. Yet these persons are unable to approach a bank for loan funds because they do not own the land on which their homes have been constructed.

One of the issues that pre-occupy Government is the sale of community land at prices that the residents of the community cannot afford. Consequently, these communities become embittered as the land is sold to "outsiders". In effect, they feel that they are denied what should rightfully be theirs.

The time has come to tackle this problem. The Government Policy document on land is in preparation and hopefully, will be published this year. Pending the comprehensive policy just alluded to, government proposes to:

Confer title to persons in respect of the lot on which their homes are constructed, provided they satisfy certain criteria. Title will be conferred at a price well below market value since the number of years of occupation of the property in question will be taken into consideration in determining the price. In the case of the residents at La Ressource, La Tourney and Au Picon in Vieux Fort South, conferment of title shall be managed by the Vieux Fort Development Corporation when it comes on stream later this year.

 

Where community land is sub-divided for housing for the purposes of providing access to land, Government will ensure that persons of the community who have lived for generations in the community, are provided with the opportunity to own house spots at a more favourable price than outsiders. In that context, the people of Piaye, Balembouche, Tete Morne and Balca can expect a reduction in the price of the house spots currently being sold to them.

 

Meanwhile, I ask the residents of those communities to be patient as Government puts the mechanisms in place. The ultimate solution is really a comprehensive Land Reform Programme.

In the 1998/99 Budget Presentation, I confirmed that it was the policy of this Government to withdraw from those sectors and activities where intervention is no longer necessary or justifiable. Government believes in a competitive, market driven economy.

Sometimes, price controls on commodities are needed in markets where there is danger of excess demand or limited supply, where competition is virtually non-existent, or where monopolies exist, holding Government or consumers to ransom. Often, price controls are needed to protect the vulnerable, the poor and the dispossessed. Sometimes too, price controls may be used to maintain price stability and control inflation.

Considerable competition now exists in the retail sector. Frankly, the more the competition, the merrier. This competition no longer justifies the retention of price control measures on a variety of commodities. Market forces could be a more effective mechanism for price adjustments. In any event, the present measures to enforce price controls are wasteful and ineffective.

Effective 1^st April 1999, twenty-two commodities will be deleted from the Price Control List. These commodities include:

Ice Cream Cones

Cheese

Eggs

Butter, Lard, Margarine, Shortening

Edible Oil

Aerated Drinks

Biscuits

Cocoa

Coffee

Tea

Fruit Juices and Nectars

Tonic Foods (Milo, Ovaltine, etc)

Pasta (Macaroni, vermicelli, spaghetti)

Meats (local and imported)

Fish (local)

Imported Fish (whether tinned, pickled, salted or otherwise)

Detergents

Tobacco

Batteries

Motor Cycles

Marine Engines

Vehicle Accessories

 

Price Controls will only remain on fifteen commodities. These remaining commodities are absolutely essential to protecting the health, nutritional and educational needs of our vulnerable citizens. These include:

Baby Foods

Cereals

Bread

Wheat Flour

Milk

Rice

Potatoes

Peas and Beans

Garlic

Onions

Sugar

Cement

Fuels

Propane Gas

School Supplies (text books, etc)

 

There is one commodity that worries the Government. It is pharmaceuticals. Government is anxious to ensure that medicines for chronic diseases for example, high blood pressure and diabetes, are not priced beyond the reach of our citizens. Consequently, the Ministry of Commerce, Consumer Affairs and Industry and the Ministry of Health, Human Services, Family Affairs and Gender Relations, have been mandated to review this matter in consultation with the importers in time for a policy statement by next budget.

Simultaneous with the reduced emphasis on price controls, the focus of the Ministry of Consumer Affairs will shift toward consumer protection. New activities will be undertaken to reflect this new focus.

Earlier, Mr Speaker, I spoke of the contraction in the manufacturing sector. The overall share of this sector to GDP declined from 7.02% in 1995 to 6.45% in 1996, 6.39% in 1997, and 6.08% in 1998. Since 1996, the sector has been experiencing negative growth. In 1996, it experienced negative growth of –6.78%, eventually slowing by –2.11% in 1998. But there are a few hopeful signs. The actual GDP growth rate, meaning the actual amount contributed to GDP, increased from 0.6% in 1997 to 2.9% in 1998.

One thing is clear. The manufacturing sector will not survive if it does not concentrate on niche operations. Manufacturers cannot rely solely on our domestic market. Our market is simply too small for them to enjoy economies of scale. Unless we seek to provide some encouragement then our manufacturers will continue to lose competitive advantage as we are compelled to liberalize trade further to satisfy our regional and international obligations. There is, therefore, need to offer some form of assistance that will help to reduce their production cost and allow them to compete, at least, at the domestic and regional level. I propose to introduce two measures to assist this sector.

At present, all registered manufacturers are eligible for a waiver of import duties and consumption taxes on raw materials or inputs to production. Simply put Mr. Speaker, if an individual registers with the Customs Division as a Manufacturer, any item that is imported for producing/making the good(s) (for which he is registered) is allowed a waiver of import duty and consumption tax.

Mr. Speaker, Government proposes to extend this concession further and exempt inputs or raw materials for the manufacturing of registered goods from the payment of service charge. Let me emphasize, only registered manufactures will be allowed this concession. Therefore, I urge all local manufacturers to apply to Cabinet for the waiver of service charge through the Ministry of Commerce, Industry and Consumer Affairs. This route is necessary in order to declare the manufacturer an exempt body for the purpose of the waiver of the charge.

In extending this concession, Mr. Speaker, I must also point out that the final product cannot enjoy preferential treatment and must, where applicable, be subject to the payment of consumption taxes.

The second measure I wish to propose to assist our manufacturers is a Consumption Tax Allowance. In essence, this proposal provides a yardstick for performance and rewards manufacturers with consumption tax allowance if they achieve targets agreed between them and the Ministry of Commerce, Industry and Consumer Affairs. It is proposed to amend section 30 of the Consumption Tax Act, No. 30 of 1968, by adding a new sub-section 4 in the following terms:

"(4) Manufacturers shall be entitled to a consumption tax allowance on the achievement of specified targets as agreed between the Ministry of Commerce, Industry & Consumer Affairs, and the Manufacturer in accordance with the criteria and table in the Third Schedule."

 

The criteria includes:

Employment Generation

Investment

Product Line

Export Share

Domestic Market Share

 

The consumption tax allowance will be based on the class of the manufacturer and the allowance on the percentage of the targets that are actually achieved.

The allowance would be granted on an annual basis. It would not be actually paid in cash, but would be allowed as a deduction against consumption tax payable. This programme would place manufacturers in a better position to expand output and employment

Mr Speaker, Honourable Members would be pleased to know that the Private Sector Development Strategy that I announced last year has been prepared and submitted for consideration by the European Union. This five-year programme is the only one of its kind in the Eastern Caribbean and has been applauded for its enlightened approach to private sector stimulation. The programmed budget for this initiative allocates some EC$6 million to private sector development over a five-year period. Of this total, some EC$2 million has been budgeted for FY 99/00.

To explain Mr Speaker, the Private Sector Development Strategy is a matrix of strategic interventions at four distinct levels:

At Policy Level, funds have been allocated to review and redesign policies that may be adversely affecting growth and diversification in the private sector;

At Institutional Level, funds have been allocated to strengthening private sector institutions to carry out the development work which is required of them as responsible social partners;

At Parastatal Level, funds have been allocated to conduct business training and retraining of persons affected by privatization who wish to start their own business; and

At Community Level, funds have been allocated for entrepreneurial development programmes with particular emphasis on young people and women.

 

These specific programme activities will be designed and implemented in partnership with existing community organizations and sector agencies.

Mr Speaker, Honourable Members, I am pleased to advise that shares of the National Commercial Bank should be available to the public by April, 1999. Some four million shares will be available to the public at a cost of $5 each. Please note, Mr Speaker, that these shares are deliberately priced to be within the reach of every St. Lucia at home and abroad. The National Commercial Bank has already targeted St Lucian communities in the United Kingdom, the United States and Canada.

Mr Speaker, Government has also invited the St Lucia Development Bank to submit privatization proposals to Cabinet for its consideration. The objective is to make our Development Bank a more autonomous financial institution, more market-oriented, and more responsive to the needs of the borrowing public.

Mr. Speaker, earlier today, Her Excellency, the Governor General, spoke of the need for Saint Lucia to be on exhibition as the new millennium and our 21^st birthday as an independent nation approaches.

One way to honour this special occasion is to enhance the beauty of our country and its infrastructure. The Government is particularly concerned about the appearance of the buildings in our towns. In order to encourage our private sector to repair, rehabilitate and improve their present or existing places of business, it is proposed to exempt business places from paying duty and consumption tax on all building materials purchased to repair, rehabilitate and renovate places of business in the centre and immediate periphery of Castries, Vieux Fort, Gros Islet and Soufriere. This concession will be in effect from 1^st April 1999 to 31^st December 2000. Applications supported by a Bill of Quantities should be forwarded to Cabinet through the Office of Privatization and Private Sector Relations. The business community is urged to move quickly to make use of this concession.

In the Budget presentation last year, I announced the introduction of a head tax on guests who stay at all-inclusive properties. The head tax was intended to yield an additional EC$ 8 million to meet, inter alia, the cost of marketing our tourism product. The measure generated considerable dialogue between the Ministry of Finance and the St Lucia Hotel and Tourism Association. It has been agreed to maintain the principle of a head tax but modify the proposals to reflect differences among the hotels. The modification will result in a lower than expected yield from this source. On the recommendation of the St Lucia Hotel and Tourism Association, Government has also agreed to partially recover the loss in revenue by increasing the Departure Tax payable by the tourists and other visitors to Saint Lucia. The increase will not apply to Caricom nationals.

Therefore, effective 19th April 1999, The Airport Service Charge will be as follows:

This refinement, Mr. Speaker, will have NO effect on St Lucians travelling overseas. Let me repeat this. There will be NO increase in the Airport Service Charge paid by nationals who travel overseas. Our CARICOM brothers and sisters will pay EC$5 less than was announced last year while ALL other travelers will pay an additional EC$ 14.

Honourable Members will also note that in keeping with an obligation under the Saint Lucia Agreement with the World Bank in respect of the Solid Waste Management Project, all travelers are required to pay a levy of US$1.50 or EC$4.08. While this charge was incorporated in the Airport Service Charge and the Cruise Passenger Head Tax last year, it is yet to be applied to Ferry passengers.

I believe three months is a reasonable period within which the new arrangements can be facilitated. Therefore, effective 1^st July 1999, Ferry Passengers will be required to pay an increase of EC$ 2.00 in respect of passenger embarkation and passenger dis-embarkation fees.

Mr Speaker, this Government will continue to rid the country of inefficient, irritating and non-productive taxes. One such tax is the Entertainment Duty which is charged on such events as movies shown at cinemas, theatrical performances, professional boxing contests, horse racing, and concert performances.

A significant portion of the tax has been collected on concert events. Promoters of such events often complain that the tax is a disincentive to the staging of quality shows as they find it difficult to charge attractive prices. I want to help them.

While the Government is of the view that promoters should accept the risks of their business ventures, we have decided to abolish the Entertainment Duty. However, the income earned by foreign entertainers as a result of staging performances in St. Lucia will still be subject to Withholding Tax under the existing provisions of the Income Tax Act. The Inland Revenue Department will therefore carry out the necessary checks to ensure that such withholding taxes are levied and paid by, or on behalf of, foreign entertainers.

Mr. Speaker, Honourable Members, for some time now, the Car Rentals Sector of the St Lucia Hotel and Tourism Association has been pleading with the Government to reduce or abolish the duty and consumption tax regime on vehicles purchased by the companies operating in the tourism sector. One could simply dismiss their plea by replying that they now seek to contribute to the concession syndrome sweeping this country. To their credit, they recognized that the Government needed revenue and in exchange for the concessions on duty and consumption tax, proposed a scheme containing three elements:

Introduction of an Annual Vehicle Rental Operational License Fee of EC$3,000.00;

Introduction of a US$5.00 or EC$13.50 "user-fee" on a daily rental rate; and

Payment of 4% service charge on all imported vehicles.

 

If the Government were seduced by the proposals of the Car Rental Sector, then it would suffer a significant loss of revenue. Already, this sector has benefited by the abolition of vehicle licences. Furthermore, the granting of concessions may well allow individuals or other stakeholders in the transportation sector to manipulate the regime. Despite these problems, there is an attractive element in their proposal, that is, the introduction of a US$5.00 "user-fee" on the daily rental rate.

Having considered all the factors, Government has agreed to reduce the duty and consumption tax regimes by 50% subject to the following terms and conditions:

(1) (a) Introduction of an annual vehicle rental operational licence fee of EC$5,000.00.

A US$5.00 or EC$13.50 "user-fee" on the daily rental rate. This fee shall be collected in a manner approved by the Minister for Finance.

 

Payment of 4% service charge on all imported cars.

 

Car Rental Operators must:

be declared "approved operators" by the Ministry of Tourism, Civil Aviation and International Financial Services;

own a minimum of fifteen (15) vehicles prior to application for the concessions;

agree to confine the use of the vehicles purchased or imported exclusively to the car rental sector;

retain vehicles which qualify for the concessions for a minimum period of three (3) years;

ensure that the vehicles are new or if not new, be less than three (3) years old at the time of importation; and

demonstrate that the company is wholly owned by St Lucian nationals.

 

Mr Speaker, any breach of the above conditions will lead to the withdrawal of the concession to the agency in breach. However, I must emphasize that Government cannot reduce duty and consumption tax on the vehicles and at the same time allow the operators to claim the initial Capital Allowances on new vehicles purchased when they submit their Income Tax Returns. Consequently, these allowances will have to be adjusted or abolished.

There is one further caveat. The regime will be reviewed after two years to determine whether:

Government has suffered any revenue loss or gain; and

The consumer has benefited by a reduction of prices.

 

Finally, it must be emphasized that the proposed regime will only apply to those car operators who qualify on the basis of the criteria that I have outlined and who requested the concessions. All other operators will meet the usual charges.

It is proposed that the new regime will take effect on 1^st June 1999. This should give the Ministry of Tourism, Civil Aviation and Financial Services stakeholders’ sufficient time to iron out the necessary arrangements with the operators.

Mr Speaker, I crave your sympathy. Please be patient with me. I am approaching, I assure you, sensitive issues, turbulent waters, some might say. The subject, Mr Speaker is the `Income Tax Bill’.

Mr Speaker, Honourable Members, this is a Government that listens. It initiates discussion of proposed legislation, rather than simply use its massive majority to enact the legislation, even when the process yields unfair criticism. And when, out of discussion, it recognises the need to make changes, it has the courage and the humility to make those necessary changes.

There has been much public discussion of the Draft Income Tax Bill. The Government is indeed heartened about the level of public debate on this issue that has taken place over the past several weeks. We have heard the pros and cons of the various measures proposed. We have solicited and received comments, advice and recommendations. That, Honourable Members, is exactly what was intended. We have said time and again, that this is a Government committed to transparency in public affairs. It was therefore our intention from the beginning to encourage a level of public discussion that would benefit us in our consideration of the legislation that will eventually be presented to this House for its approval. We have listened and we have learned.

The level of discussion in the media – through the newspapers, radio and TV – has yielded positive and negative comments, rational and irrational arguments, honest and dishonest statements. Debate inevitably yields such results.

Allow me, Honourable Members, on our collective behalf, to thank the public, the talk show hosts, the consultants and other interested and affected persons, the private sector, the unions and all who participated i