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Antigua And Barbuda Commits To Reigning In Deficit

by Amanda Banks, Tax-News.com, London

03 December 2009

Harold Lovell, Antigua and Barbuda’s Finance Minister, has announced details of the 2010 budget, which attempts to consolidate public finances in the midst of a projected economic contraction of 6.7%.

He observed that: “The year 2008 was an extremely challenging year. We saw unprecedented increases in the international price of oil, an escalation in the prices of basic food items and raw materials, a meltdown in the major financial markets, massive job losses in many industrial economies, and a slowdown in economic growth that many pundits compare to the Great Depression of the 1930s.”

Antigua and Barbuda is expected to experience one of the most severe recessions in the Organization of Eastern Caribbean States (OECS) sub-region as a result of the financial crisis despite the resilience of its financial sector.

All OECS territories, except Dominica, are forecasted to contract. Anguilla's economy is estimated to contract 22%, St Kitts and Nevis 8.5%, Grenada 5%, St Lucia 3.8% and St Vincent and the Grenadines, 0.2%.

Lovell continued: “It is undeniable that for well over thirty years, the Government of Antigua and Barbuda has been experiencing fiscal challenges."

"Data on the fiscal performance of Antigua and Barbuda from 1973 to 2008 show that over a 35-year period not once did the government record an overall surplus. Thirty five years where total expenditure outstripped total revenue on an annual basis. The laws of mathematics have held true for centuries and they continue to hold true when analysing the economy of Antigua and Barbuda.”

Vowing to consolidate the budget, Lovell announced that: “Total expenditure must be equal to total revenue plus net borrowings. This is the same equation we must confront on an annual basis as we go through the budget process. The problem with Antigua and Barbuda is that for the better part of three decades this basic principle of arithmetic was ignored.”

On the expenditure side, Lovell observed that expenditure on wages and salaries consumes more than 45% of current revenue.

“This level of expenditure on wages and salaries is unsustainable and any meaningful fiscal adjustment must address this issue. With respect to wages and salaries we have proposed a 20% reduction over the next three years. This amounts to a reduction of about XCD40m (USD15m) over the period,” he explained.

Lovell has announced that government spending will be tackled in the following way:

  • Reducing the level of overtime paid to no more than East Caribbean Dollars (XCD)5m per year. In 2009, approximately XCD19m was budgeted to pay overtime;
  • Implementing an attrition programme over the next five years. This will allow for all workers reaching the age of sixty to immediately leave the service, while new skilled workers will be channelled into critical areas, including revenue administration and expenditure management;
  • Implementing an initiative to outsource a number of services that the government currently provides. The public will be encouraged to form small businesses and to bid competitively to supply these services to government. These small businesses will be supported by the incentives contained in the Small Business Development Act;
  • Re-allocating workers within the government service to fill vacancies and reduce the growth of the wage bill. This will form part of an overall public sector transformation programme aimed at matching the right skill sets to the right jobs and building efficiency in the delivery of government services.

On the tax front the government plans to increase the tax take by 5% from 20% of GDP currently to 25%. The main measures proposed include:

  • Increasing the revenue yield from the Antigua and Barbuda Sales Tax. The government plans to reduce the number of zero-rated goods, and increase the compliance rate to 85% (from 50%), to achieve a yield of 10% of GDP, up from 6.4% currently.
  • Replacing the customs service tax with the Antigua and Barbuda Revenue Recovery Charge, to be levied at 10% on all non-oil imports. Given the current level of imports this measure should yield an additional XCD25m to XCD30m.
  • Introducing an excise tax on alcohol, tobacco, ammunition and guns and to replace the current luxury tax on vehicles.
  • Increasing the embarkation tax to XCD50 for residents and CARICOM nationals and to USD25 for non-CARICOM visitors.

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