Anguilla Braced For Tax Hikes

by Phillip Morton, Investors Offshore.com

27 April 2010

Anguilla’s Minister for Finance, Hubert Hughes has warned that taxes will have to be hiked to secure a financing agreement.

In a radio interview, Hughes announced that the Ministry of Finance was in discussions with the Caribbean Development Bank (CDB) to receive a ‘soft loan’ to rid the island of the high interest rates it currently faces from local commercial banks. Hughes hopes such an agreement would allow Anguilla to transfer its bank loans to a facility with the CDB initially with a 0% interest rate, but increasing to a rate of around 4-6% over a period of up to five years.

In order to secure this agreement, the CDB would have to be satisfied that the island’s fiscal policy was appropriate, considering the island’s severe financial difficulties. Hughes said that public spending could be cut no further, so additional money would have to be found through new revenue streams. However he acknowledged the difficulties that the government faces "in raising taxes from a dead economy.”

The Minister has already indicated that taxes on alcohol and cigarettes will be significantly increased, and public consultations have been launched on further measures to solve Anguilla’s financial woes.

“CDB requires a balanced budget…finding revenue to meet the expenditure,” Hughes explained to the nation.

The announcement by Hughes follows the government's March statement, which warned that a review of fiscal policy was forthcoming. At the time, the government admitted that "serious measures" were needed to balance the budget.

“Anguillan revenues have fallen 30% over the last two years, consequently it is no exaggeration to say that the revenue situation in Anguilla has been set back five years,” the government said at the time.

The government has disclosed that the deficit during 2009 was partially financed by fiscal reserves worth XCD39m, with the remainder financed by domestic banks. As a result of the deficit, the central government debt increased to approximately XCD172.1m in 2009, up from XCD149.7m at the end of 2008.

The outlook for government revenues continues to look bleak. Analysis suggests that revenues will amount to approximately XCD148m in 2010, while expenditure will amount to around XCD237m – a deficit of over XCD89m.

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