| Consultation on TCI finances to begin | | Print | |
| Written by Richard Green/richard@fptci.com | |||
| Thursday, 17 February 2011 12:42 | |||
 A presentation detailing how the Turks and Caicos Islands’ government plunged into near bankruptcy says the only way out is to cut wasteful government spending and increase tax revenue — but no property taxes. The European Union-funded revenue study presentation released Feb. 10 will be used in consultations beginning today (Feb. 17) to receive input on how to achieve a government budget surplus by March 2013. That is the requirement set by the U.K. Department for International Development (DFID) for up to $260 million in loan guarantees to keep the country afloat until then. “These problems have built up over time and will not go away overnight,” said Brian Titley, the U.K. Chief Economic Adviser to the governor. “Corrective action is needed and now. Whatever administration is in government would face the same tough choices.” But the interim government said it has already decided that property taxes aren’t “administratively feasible or prudent in current economic conditions. The government has accepted these conclusions.” What will be done to boost government revenue has not been decided, but His Excellency the Gov. Gordon Wetherell has said some decisions must be made in time to include in the next fiscal year’s budget which begins April 1. The governor will make those decisions, but not without consultation with the public, businesses, the Consultative Forum and the Advisory Council. On the cost-cutting side, the interim government has just begun a process of right sizing the public service workforce, whose pay represents 60 percent of spending in the current budget, even after the government cut all public service salaries by 10 percent in May. Between 2000 and 2007, elected governments tripled public spending, most of that in public service salaries. The number of employees jumped from fewer than 1,500 in 2002 to nearly 3,000 in 2008. Despite an economic boom, the former elected government began running huge deficits in 2007 with a revenue gap of nearly $40 million, which jumped to more than $70 million in 2008, according to the presentation. The government masked the problem with massive — but below market-value — sales of Crown land to pay for recurring expenses, including public service salaries. The government also granted tax concessions that helped fuel an unsustainable construction boom in 2005 and 2006, and “there is now an excess of unproductive and underutilized property assets in TCI,” the presentation said. “A narrow tax base, poor tax administration and the unchecked granting of tax exemptions and concessions by the previous administration have undermined the public revenue system in the TCI,” the interim government said. The presentation said there was significant evidence of no budgetary planning, control or monitoring of government ministries and departments during this period, areas the interim government has been working on since it took over in August 2009. “If it is to grow and compete effectively in an increasingly competitive regional and global economy, (the TCI) must correct its public finances, improve its public services, grow its consumer base and remove barriers to business innovation, creation, competition and growth,” the presentation said. “Not to do so will only damage the interests of Belongers and all residents in the long run.” In charge of the revenue study that began in October is Chief Financial Officer Caroline Gardner, who was chosen by DFID as one of the requirements for loans. The presentation on the country’s finances points out that it is “based on preliminary and unvalidated data from the Ministry of Finance and Department for Economics, Planning and Statistics.” In a National Accounts Statistics report released with the presentation, the Ministry of Finance Department for Economics Planning and Statistics (DEPS) pointed out instances of incomplete economic data in nearly every category used in determining the country’s gross domestic product (GDP). DEPS recommends enacting legislation to require compliance in data reporting, improving the Central Business Register, encouraging response to business surveys, improving collaboration between government departments and training for government staff. Click here to read the government's Feb. 10 press release Click here to read the TCI Macro-economy and Public Finances report Click here to read the National Accounts Statistics report
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