Former Prime Minister Owen Arthur has advised the government to resist calls for an adjustment to the country’s tax base in a manner that can “induce further financial instability”.
Speaking at the ruling Saint Lucia Labour Party’s annual Conference of Delegates in Vieux Fort on Sunday, Dec. 6, Arthur added that calls for the abolition of the Value Added Tax (VAT) were part of “a political game and should be ignored”.
Arthur said “excessive use of punitive levels of taxation and draconian reduction of expenditure” would only lead to severe economic contraction. He made that statement while pointing to a recent international study of fiscal consolidation programmes proposed for the 187 countries.
“Indeed, if the 187 countries, including St. Lucia, proceed full blast with their programmes to correct their fiscal imbalances by compressing domestic demand, the study projects that the world can be thrown into a deep new turmoil of global recession between 2016 and 2020,” he said.
He noted that the projection made in the research done by the South Centre, Columbia University and the International Labour Organisation was for a loss of seven per cent of Global GDP and over 12 million job losses over the next five years.
Arthur therefore sees it as important for countries to seek to avert this pending disaster “by setting out to correct their fiscal problems more by inducing economic growth, and less by new punitive tax and expenditure reduction measures”.
“These calls are made to enable the Governments to be condemned for not doing that which in all wisdom and prudence cannot be done,” he cautioned.
Arthur also drew attention to a study published on September 15th by the Caribbean Development Bank, which is entitled Public Sector Debt in the Caribbean: An Agenda for Reduction and Sustainability.
He said it contains an in-depth evaluation of the root causes of the recent debt accumulation and presents some highly revealing insights, including the fact that “the largest recent contributors to debt have been the cost of off-budget events and activities.
“Among these are the operations of public enterprises which have badly impaired balance sheets,” Arthur said, adding that “the contingent debt associated therewith has become the primary source of new debt in the region.
The former prime minister warned that this was now a major problem, which had to be confronted not only in St Lucia but, especially Barbados, where he said nothing short of a $200 million adjustment has to be made to the funding and operation of such enterprises.
Arthur, while contending that integration was the best way forward for “broken” Caribbean economies and that Barbados was “the true Eastern Caribbean state”, also cautioned that fundamental issues related to the nature of governance, the political culture and the role of public enterprises will have to be addressed.