ST GEORGE'S, Grenada, Dec 15 - The Grenada government Friday presented an EC$632.5 million (US$225.8 million) budget to parliament promising to strengthen tax collection measures and warning citizens that the island can no longer depend on donor countries to finance its development.
Finance Minister Anthony Boatswain said that it was also important for Grenada to demonstrate to the international community its own efforts to rebuilding the economy devastated by two hurricanes and that the current account surplus generated from this budget would be used to finance capital programmes.
The Finance Minister said that for the fiscal year 2007, current revenue is budgeted at EC$441.1 million (US$157.5 million) approximately 9.9 per cent higher than the budgeted figure of 2006.
He said this growth is largely due to measures contemplated in the Inland Revenue and Customs Departments to improve administration of tax collection.
The Grenada government said current expenditure is budgeted at EC$350.7 million (US$125.2 million), nearly 6.9 per cent above the budgeted figure of the previous year.
"The rise in current expenditure is largely explained by higher anticipated outlays on wages and salaries, interest payments and current transfers. Notwithstanding these increases, the Ministry of Finance will continue its effort to exercise control on discretionary recurrent expenditure on goods and services," Boatswain said.
He said that it therefore meant that in 2007, the Grenada government has budgeted for a current account surplus of EC$90.5 million (US$32.3 million) or 5.9 per cent of Gross Domestic Product (GDP), which is above the established benchmark of five per cent of GDP.
"This surplus on government's current operations will be used primarily to finance the country's capital programme of EC$225.5 million (US$80.5 million). It must be stated that now that the country is on its recovery path, government can no longer continue to depend fully on donor support to finance the country's development.
"We have to continue to demonstrate to the international community our own efforts in rebuilding our economy as the basis for receiving their further support. Hence the importance of the current account surplus to be dedicated to financing the capital programmes.
"In addition, the capital budget will be financed by capital grants from friendly governments and institutions amounting to EC$92.5 million (US$33.05 million) leaving an overall deficit after grants of EC$39.8 million (US$14.2 million) which is just under the established benchmark of three per cent of GDP, and will be financed from external and domestic loans," Boatswain added.
Boatswain said that the government would seek to improve on its revenue collection by establishing a Recoveries and Collection Unit within the Ministry of Finance.
He said the reconstruction effort occasioned by the hurricane had placed greater burden on the government and as a result while the Keith Mitchell administration is aware that "there there are many persons who can afford but have not been contributing their fair share to the consolidated fund, some others have been delinquent in the payment of their taxes".
He said a recent study showed that the amount of outstanding arrears owed to government by delinquent tax payers was in excess of EC$170 million (US$60.7 million).
"This cannot be right at a time when everyone needs to play his/her part in nation building. Government has therefore taken the decision to restructure the existing collection unit in the Ministry of Finance to a Recoveries and Collection Unit and to increase the number of tax collectors. This Unit will be charged with the responsibility of collecting all arrears of Government taxes, in addition to registering new and potential tax payers."
Boatswain said that while it is not the intention to impose any additional taxes on the population, the Mitchell administration would be "relying heavily on higher levels of tax compliance and efficiency in collections rather than additional tax measures to meet its revenue needs".
"We therefore urge all registered and potential tax payers to comply fully with the Law," he said.
The Finance Minister said that in keeping with the Sir Alister McIntyre Report, the government has taken the firm decision to re-introduce Value Added Tax (VAT) by October 2007, and not January 1st 2008 as had been previously announced.
He said this new date coincides with most business' new financial year and would allow for a smoother transition to the new system.
"I want to make it abundantly clear, that while VAT is being reintroduced, it is not intended to place additional burden on the population. This is because VAT will replace three existing taxes," including the General Consumption Tax (GCT), the Airline Ticket Tax, and Motor Vehicle Purchase Tax.
"To the extent that VAT will be revenue neutral, its broad base would allow for an increase in Government revenue as more items will be taxable but at a lower rate. In addition, our preliminary calculations suggest that the introduction of VAT would lead to a reduction in prices on a wide range of goods," Boatswain said, noting that the VAT is expected to raise approximately $44.5 million (US$15.8 million) in 2007.
Boatswain said that one of the major policy measures of the governments three-year Economic Reform Programme, was the implementation of the National Reconstruction Levy and that at the end of November EC$6.9 million (US$2.4 million) had been collected.
"For 2007 we are projecting that the NRL will generate approximately EC$12 million (US$4.2 million), resulting primarily from an increase in economic activity, higher wages, and from the self employed, whose contributions are made in arrears," Boatswain said.
The Finance Minister also announced that the government was carrying out an island-wide re-evaluation of all properties land and buildings, so as to establish their true market values. The exercise will end in January 2008.
Boatswain said that the local economy had grown by 1.3 per cent last year "compared to an unsustained rate of 12.1 per cent recorded in the previous year".
He said all the major productive and services sectors had shown signs of recovery and had contributed to the economic growth.
"For example, the agricultural sector grew by 20.5 per cent in 2006 following decline of 38.1 per cent in the previous year, and reflected increased production of crops, livestock, forestry and fishing," he told legislators.
He said the higher levels of output have impacted positively on Government's revenue with preliminary data indicate that the Grenada government would achieve a surplus on its current operations of EC$63.8 million (US$23.6 million) or 4.5 per cent of Gross Domestic Product (GDP), which is higher than what was achieved last year.
He said current revenues increased by 6.6 per cent to EC$383.7 million (US$137.05 million) due mainly to higher collections from property tax and the National Reconstruction Levy.
However, current expenditure grew by 5.5 per cent to EC$319.8 million (US$118.4 million) on account of growth in all categories of current expenditure except outlays on discretionary spending on goods and services which declined relative to the previous year.
Boatswain said that on the other hand, capital expenditure increased substantially by 31.8 per cent to EC$270.5 million (US$96.6 million) reflecting the acceleration in the implementation of ongoing and reconstruction projects.
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