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1997 Supplementary Budget Address

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FINANCIAL STATEMENT & SUPPLEMENTARY BUDGET PROPOSALS 1997/98

BY


PRIME MINISTER AND MINISTER OF FINANCE


THE HON. DR KENNY D. ANTHONY


TO PARLIAMENT


NOVEMBER 4th 1997


INTRODUCTION


On May 23rd, 1997, the people of Saint Lucia spoke decisively. In what some have described as an avalanche, they removed from the seat of power and authority, a Government that had become arrogant, abusive, self-serving and contemptuous.

There is no better example of the contempt which the former Government had for the people of Saint Lucia than its decision to present a budget on April 22nd, 1997, a mere thirty-one days before General Elections. The decision was contemptuous because the Government knew that the General Elections was a matter of days away, yet, it denied the people of Saint Lucia the power to determine, through the General Elections, which Government should present a budget for the financial year, 1997/98.

The U.W.P. Government chose to ignore the well known convention that where a General Election is imminent and a budget due, then the outgoing Government ought to leave the electorate to determine which Government should be trusted with power to present the next budget, provided that the Constitution is not offended.

There was no need for the former Prime Minister to present a budget a few days before the General Elections. Section 80 of the Saint Lucia Constitution, S.I. 1978 No. 1901, empowers the Minister of Finance to authorize the withdrawal of monies from the Consolidated Fund for the purpose of meeting expenditure necessary to carry on the services of the Government until the expiration of four months from the beginning of the financial year, provided that Parliament enacts legislation to that effect. Parliament had done so through Section 22 of the Finance Administration Act 1997, which came into force on April 01st, 1997. We knew that this Government would be forced to govern within the budgetary confines established by the former administration.

But that was not the only reason why the budget was opposed by the members who now constitute this Government. The 1997/98 budget was unrealistic in its programmes and objectives. Indeed, a recent I.M.F. Mission to Saint Lucia noted that while some two hundred million dollars (EC$200 million) had been budgeted for capital expenditure, only sixty million (EC$60 million) could be realistically spent. What is more, the economy was in recession, and like the proverbial ostrich, the former Minister of Finance chose to bury his head in the sand of UWP conceit and ignore the obvious structural deformities which his predecessor left behind before bailing out.

By the former Finance Minister's own admission, A... real GDP growth declined from 4.1% in 1995 to 1.9% in 1996. The surplus on the Current Account decreased from EC$59.1 million in 1995/96 to EC$54.7 million in 1996/97. This surplus is projected to decline further to EC$15.9 million in 1997/98. Moreover, between 1990 and 1996 earnings from the vital banana sector had declined by 33%. With the exception of tourism, declines were recorded in every other main sector in 1996. Output declined by 1.2 % in the manufacturing sector. Likewise, the share of the construction sector of GDP declined from 9.56% in 1994 to reach 8.17% in 1996 and is expected to decline even further in 1997.

Mr. Speaker, the policy implications of these indices were loud and clear. The economy had deteriorated sufficiently to warrant structural adjustment measures at the macro level. Rather, the country was presented with the pantomime described as a budget on the eve of a General Election.

Against that background, the party which has entrusted me with leadership, promised that, on being elected, it would present proposals to redirect and reorganize the economy without compromising its the integrity. The party advised that it would present a Amini budget or auxiliary budget or alternatively, a supplementary budget. These terms, though different, are, in essence to the same intent and purpose. Suffice it to say that the appropriate term to use is a Supplementary Budget. This Budget is supplementary to that which was introduced by the former administration. Mr. Speaker, this exercise today, fulfills the promise of a Supplementary Budget.

Now-a-days, the authority for a Supplementary Budget resides in section 22 of the Finance (Administration) Act, No 3 of 1997. That section empowers the Minister of Finance to lay a Supplementary Estimate, and after its approval, introduce a Supplementary Appropriation Bill if inter alia, Aa need has arisen for expenditure for a purpose to which an amount has been appropriated (or) for a purpose to which no amount has been appropriated by law. This Supplementary Budget satisfies both criteria. Moreover, the changes in the subject portfolios of ministries make it even more necessary that the financial resources available to the government be re-allocated to reflect the new administrative dispensation. Indeed, Mr. Speaker, of the sum of EC$51,666,030 allocated to recurrent expenditure in this Supplementary Budget, $35.7 million dollars represents re-allocated expenditure across ministries. Likewise, in respect of the amount EC$73,317,090 allocated to capital expenditure, EC$24.7 million is reallocated expenditure across various heads of expenditure.

Mr. Speaker, it is critical that the difference between this Supplementary Budget and the Annual Budget be explained and understood. In obedience to our Constitution, Parliament is required to approve the estimates and expenditure for the financial year. A Government normally presents its major policies and programmes on Budget Day. A Supplementary Budget merely seeks to remedy the deficiencies of a budget already approved.

The above distinction is drawn to emphasize that the major budgetary statement of the Government will be delivered in April 1998, as is customary. This Supplementary Budget is meant to lay the basis to refocus our economy, to tackle the inherited structural problems, and to inspire confidence in our ability to overcome our problems. We have inherited a situation which requires more than prudence. We must exercise utmost care and vigilance to climb out of this economic abyss.

Public Participation in the Exercise

Mr. Speaker, neither the Government nor the Minister of Finance has all the answers to our economic problems. This government understands humility. Those who believe that the nemesis of this Government and its leadership lies in displays of arrogant pride must seek comfort elsewhere for their wild ambitions.

This Government believes that a budget presentation affords a unique opportunity to tap the experience and wisdom of our social partners. The budgetary exercise provides another opportunity to redesign the boundaries of participation and democracy to bring our collective minds to purge our economy of its impurities.

Mr. Speaker, in the preparation of this Supplementary Budget, I have benefited from the views and ideas of the professionals in the Public Service and recommendations of private sector organizations as well as private individuals. This interaction must be deepened to embrace all our Social Partners in time for the Annual Budgetary Proposals in 1998.

Establishment of Council of Social Partners

The former government had established two consultative mechanisms, a National Economic and Social Consultative Council and a National Economic Development Commission. In this Government's view, the work of the two bodies could be collapsed into one structure, and the scope and depth of responsibilities deepened. Consistent with its proposals in the AContract of Faith, Government will establish a Council of Social Partners comprising representatives of the public sector, the private sector, labour, churches, non-governmental organizations and regional institutions, to review performance, dialogue on issues and advise on policy programmes. In matters pertaining to budgetary policy, the Council shall meet in open and closed sessions, at least two to three days annually, to address and make recommendations to Government on national budgetary issues.

Philosophy, Objectives and Goals

A budget is not a mere exercise to impose taxes and grant concessions and allowances. It is an important policy instrument used by any responsible government to help it in achieving certain objectives for the country and the economy. Since this is my first presentation let me use this opportunity to outline our philosophy, objectives and goals for Saint Lucia and hence the underpinnings that will influence this supplementary budget presentation. Obviously, these goals are to be attained over an extended period of time and this budget represents just the first stage, but an important one, nonetheless, in our continuing programmes to achieve these goals. I will classify these objectives under three broad groupings as follows: political parameters, social imperatives and economic thrust.

Political Parameters

Our prime objective is to unite St. Lucians to accept the need to consolidate our political independence, cherish our hard-fought sovereignty, enhance our identity, and to get the world to recognize that, despite our small size, we expect to be treated as equals and accorded due respect. These fundamental political principles are neither negotiable nor tradable. We intend to maintain and cement relationships with other countries but these will be on the basis of mutual respect, and will always take into account what is in St. Lucia's best long term interests but all in the spirit of global fraternity. We would like to make St. Lucians prouder, more loyal, and committed to St. Lucia and its development. We would like to see St. Lucians being more aware of the workings of government and of the economy, showing a greater interest and participating more actively in the affairs of state, and recognizing that each and every St. Lucian is integral to the process of development. We want to see and will promote open, transparent, fair and accountable government. Similarly, we want public officers and other public sector employees (and, in fact, the society as a whole) to be more prompt, courteous, tolerant and more helpful when providing services to the client public.

We see the maintenance of law and order as one of the prime responsibilities of the state and an important ingredient in the development process and in maintaining social stability. We support fully the Rule of Law. If justice is to be effective, it must be meted out or dispensed speedily. So committed are we to this principle, that legislation will be introduced to this Honourable House to require public functionaries and authorities to give reasons for their decisions.

Social Imperatives

We would like to see the scourge of illiteracy wiped out in St. Lucia. This scourge which is a main contributor to poverty, facilitates exploitation of the individual and does not allow the afflicted persons to participate fully in society and to enjoy the quality of life that a modern society provides. We believe, and would work towards ensuring that no individual in our society will be denied the benefit of a basic and sound primary education and an appropriate secondary education. We would also encourage St. Lucians to view education and training as continuing processes in life and hence wish to see many more St. Lucians pursuing post-secondary or tertiary education. Towards this end, we will continually encourage and facilitate all those desirous of pursuing such training when it is in the national interest to do so.

We believe and would work towards ensuring that every individual in St. Lucia has adequate shelter preferably, wherever possible, through the ownership of their own homes. Adequate accommodation for our people, in our view, helps to minimize many of today's social ills and health problems. In the way we see things, we believe that home ownership gives pride and a feeling to the home owner that he or she has a stake in the country, and provides an incentive or a goal to work and save for.

We intend to work towards ensuring that life expectancy in St. Lucia remains at the highest level and keeps pace with international trends and improvements. Consequently, we would want to ensure that the country has adequate health care facilities even though the focus of our interventions would be on preventative health care B adequate nutrition and shelter, creating sanitary environments through, inter alia, proper solid and liquid waste disposal facilities, access to a quality potable water supply, and using our media to disseminate information on ways to improve the standard and quality of life.

We need to take much greater care of the two most vulnerable groups in our society B the young and the senior citizens. We need to take care of the young because they represent our future, our dreams, our aspirations, our longevity, our identity, our continuing place in history and our continuing contribution to global development. We need to provide a challenging and wholesome environment for the young - an environment that discourages substance abuse, that inculcates discipline and the traditional values of thrift, hard work, honesty, courtesy, respect, tolerance and an environment that can help them develop positively to their full potential. In order to ensure that we can provide the best material comfort and parental care and supervision for our children, we would need to recognize that children are best nurtured in a safe and complete family environment. We would also hope that society would see the nurturing of children not only as a family responsibility but also a community responsibility, if not directly, then certainly by precept and example. We need to reward our senior citizens for their contribution to where we are today, to continue to use them in whatever way is most mutually beneficial so that they can continually feel useful and to make their twilight years as comfortable and satisfying as possible. We do not want a society in which our elders and seniors are left uncared and unloved.

Our country has a varied, interesting and colourful history which has resulted in a very rich and unique cultural heritage. We wish to encourage and develop this cultural heritage and expression, not only as a manifestation of our unique identity but also as something which could be marketed as part of our development of heritage tourism and to broaden the range of attractions which we offer to our visitors. We do not expect, nor want, any such commercialization of our culture to compromise its integrity and authenticity. Nor would we want to reduce our patrimony to mere exhibition on the altar of money. The promotion and development of our culture must start from a recognition of the value of culture as a means of participating in the diversity of the human family and as a means of projecting one's particular contribution to the human family. To the extent that we share and develop our own culture, we add to this global treasury, and to the extent that we open ourselves to the best traditions of others, we enrich our humanity.

Ours is a small country with a closely knit society. In a context such as ours, any distinction between so called `town and `country folk or between urban and rural is something that we ought to seek to eradicate. We are either all town or country folk. We also want to encourage the decentralization of the population and to encourage the development of settlements outside the capital city. As such we will work to make transportation easily accessible, reliable, efficient and cheap. We would also seek to ensure that modern day facilities are as equally available throughout the country as is cost-effectively possible. Thus we would work towards making medical, educational, entertainment, cultural and other basic social and economic infrastructural facilities such as power, water, waste disposal and telecommunication facilities widely available and accessible. And at as reasonable a cost as is possible.

Economic Thrust

On the economic front, our fundamental goal is to provide a reasonable standard of living and quality of life to all citizens of St. Lucia. This standard must be benchmarked on international indices but must be consistent with our actual and potential resource constraints. We are committed to the provision of economic opportunity B no resident of this beautiful country should have to live in poverty, or suffer indigence. No productive member of society who wishes to work should be denied access to gainful employment or the means by which to create their own employment. To achieve this we intend to pay particular attention to the optimum development of our human resources by encouraging and facilitating training and investment in people. In the knowledge age, education is as important a factor of production as the traditional factors of land, labour and capital. For us, education is not an end in itself but a means of achieving the economic advancement of both individual and society.

We do not believe in the handing out of welfare nor do we believe that any St. Lucian would feel comfortable and proud of being welfare recipients. We believe that all St. Lucians would like to develop their productive abilities to the full and to use their own efforts to propel themselves along. But we recognize that in aiming for this goal, St. Lucians will need help and it is our objective to provide whatever support is reasonable and cost-effective.

It has sometimes been argued that our people are afraid of competition and that St. Lucians would wish that economic activity in St. Lucia be restricted to St. Lucians only. We do not believe this is so. To accept this would lead to the adoption of policies and practices that would circumscribe our development potential in narrow and restricted goods and service markets. The fact of two Nobel laureates and a proud record of achievement by many distinguished sons and daughters in foreign lands should be sufficient testimony of our intellectual potential and our competitive capacity. That we can compete and succeed abroad is evidence enough that we can also compete and succeed at home where we already have an advantage. St. Lucians recognize that competition is good as it brings out the best in us, improves our productivity and reduces our costs and prices to everyone's satisfaction. What we believe that St. Lucians want is equal opportunity, and, crucially, some assistance in the initial stages to help them along.

My administration therefore intends to welcome competition. We welcome all investors who intend to be good corporate citizens, respecting our laws and culture, and who can contribute capital, skills, market access and/or technology to help us develop to our full potential. It is only through the emergence of that competitive edge that we can attain the standard of living which we deserve and desire.

We want ours to be a just, caring and compassionate society. Consequently, we would want to see the benefits of our economic gains as equitably distributed as possible while at the same time not frustrating or not providing due regard for initiative and effort. Whilst we would make every effort and provide every incentive to facilitate savings and productive capital formation, in rewarding for labour we would hope that our society could get consensus to achieve a distribution of wages, that, across the board, does not exceed a 1:20 ratio. In other words, that the highest salary should not be greater than 20 times the lowest wage. Such a wage consensus would help to keep down overall wage and spiraling labour costs.

We intend to regulate and monitor the use of our natural resources to ensure that they are optimally and sustainably developed to benefit not only ourselves but also generations yet unborn. Hence, when we measure progress we want such assessment to take into account not only the current stream of income and output but also to recognize whether natural assets were destroyed in the process and to account for such destruction. Our aim is to create a framework for the development of the physical environment which will allow for its sustainable use for ourselves and for the future.

As a government, we intend to make essential services available to the public where it is in the best public interest to do so and where the private sector either does not have the capacity and/or the inclination to so provide these services. However, where the state provides these services we would expect and insist that such services are provided cost-effectively and that, in order to minimize waste, there is some element of partial or complete cost recovery, depending on the user's ability to pay. We will develop and encourage activities which will increase the proportion of offshore revenue in our total revenue so as to finance the wide range of services that we need while ensuring that these services do not place too great a financial burden on our residents.

Let me again stress that what we have enumerated earlier are broad political, social and economic objectives, goals and guidelines that will influence and guide our activities and policies. They cannot all be achieved immediately, or even in the medium term. But this is what we are aiming at, and will endeavour to achieve them as soon as it is possible, depending on you, your effort and commitment, and the resources which we have under our control. In this presentation, I will, on behalf of the Government, spell out some of the main goals which we have set ourselves to achieve over the next five months in the areas of economic performance, and some of the economic policies, institutional arrangements and capital projects which we expect to put in place to achieve these objectives.


AN OPPORTUNITY FOR STRATEGIC DIRECTION

Mr. Speaker, the sluggish performance of the economy this year and in recent years, requires the enunciation and implementation of a coherent economic strategy aimed at re-positioning St. Lucia to seize the opportunities that abound in the international market- place. Previous administrations have been unable or unwilling to articulate a consistent matrix of policies to prevent economic decline and to provide the basis for long-run growth. We are determined to create an effective framework within which we will at last be able to address our problems, both in the short run and in the long run. The emphasis, Mr. Speaker, will be, not on more money, but on more efficient use of money and resources. Immediate measures are necessary to restore buoyancy to the economy, while a comprehensive long-term strategy is required for the achievement of sustainable development.

This supplementary budget gives us the opportunity to chart a new course for the future. In so doing, we must never and will never lose sight of our solemn promise to be frank with the nation and to involve all our people in the process of reconstruction.

Later in my address, I will report on the current state of the Economy and on the major problems facing us at the present time. Many of our problems are fundamental and serious, but other aspects of the socio-economic fabric and our performance in some areas are inherently sound.

Our economic strategy addresses itself to the weaknesses of the economy, while building on the strengths. Both must be taken into account in devising solutions and in mapping the way forward.

Given recent trends which I shall elaborate on later, the present state of the economy and the realities of the ever-changing global environment, our policies to deal with the immediate problems are guided by three objectives. These are:

(1) Stabilization of the economy in order to prevent any further deterioration in economic performance, social and economic structures and institutional capacity.

(2) A new strategic re-orientation aimed at positioning St. Lucia to take advantage of hitherto untapped opportunities in the international economic sphere and redirecting the economy towards the path of sustained growth.

(3) Stimulating the economy to generate a higher rate of non-inflationary growth and employment, and reduced poverty.

These economic objectives will guide policy formulation in the short term and medium term. Stabilizing, re-orienting and stimulating the economy are the focal points of this Supplementary Budget with a view to getting the economy back on track in the shortest possible time.

Stabilizing the economy involves a number of policy measures aimed at arresting the decline in growth and in the capacity of the country's systems, structures and institutions to produce efficiently. An important part of this process is the elimination of waste in the public sector. We have already set up an investigative committee to identify areas of waste and inefficiency in Government. Its recommendations will be carefully evaluated with a view to implementing them in the coming months.

When we assumed office in May, nearly all the statutory bodies and other entities outside of the Central Government were in dire financial straights and burdened by archaic management systems. Two notable exceptions were the National Insurance Scheme and the St Lucia Air and Sea Ports Authority. We are firmly committed to making the parastatal bodies fully accountable, transparent, efficient and self-financing. It has been made abundantly clear to them that their dependence on treasury financing will be phased out within the life of the current budget. Early next year, Government will hold a one-day consultation with all statutory boards to articulate its policies and expectations. The private sector will be invited to participate in the deliberations.

A critical aspect of our economic stabilization programme is the rationalization of the Government's fiscal account. We are placing renewed emphasis on major ongoing projects in the key sectors of Tourism, Manufacturing, Agriculture and Construction. However, mismanagement and the sluggishness of the economy have reduced the availability of revenue for capital projects. Consequently, it is necessary to find additional financing for the capital investment programme - that is, in addition to local revenue, foreign grants, and loans from international organizations.

We will invite the people of St. Lucia and our neighbours in the region to participate in a new issue of development bonds, the proceeds of which will assist in financing public sector capital investment. Other loans have already been sourced from the domestic banking system, while joint ventures already arranged with the private sector are another important source of project finance. All these monies are being obtained on reasonable terms because of the confidence of the financial sector and our Caribbean neighbours in the new Labour Party Administration. Since being elected to serve you the people, we have demonstrated that we possess the will to take resolute action in the national interest. Our track record in this regard gives comfort and reassurance to the local, regional and international community.

We can hardly speak of stabilizing the economy without devoting resources to the maintenance and renewal of the country's economic and social infrastructure. Neglecting essential maintenance inevitably leads to the premature and costly replacement of national assets. We must return to the good habit of preserving public facilities and taking care of our natural and man-made heritage. This may not sound like much but a nation-wide programme of beautification of towns, villages and communities can help in the process of regeneration, not to mention its potential for having a positive impact on tourism, employment and general economic well-being. This too, will form part of the process of stabilization and preventing further decline in standards.

Mr. Speaker, it is well known that we have already acted decisively in tackling crime head on. Crime affects not just its immediate victims but also all of us and it has a negative effect on economic activity. The criminal elements and drug barons in our midst will find us unyielding. We have already begun a review of the relevant legislation and a modern prison complex/correctional centre will be constructed.

I will deal with the contraction of the banana industry later in my address, and its effects on economic performance. In a few minutes I shall outline the main elements of the strategic re-orientation of which I spoke earlier. However, the banana sector will continue to be important to the economy for the foreseeable future. It therefore has a significant role to play in the stabilization effort. Whatever happens on the international stage, we still have to ensure that our productivity is high and that the quality of our fruit is unsurpassed. The price paid to the farmer will in the future, be closely related to fruit quality. In addition, a more workable institutional framework for the industry as a whole must be found quickly. We are currently exploring various options.

Accelerating the growth rate was the third objective of the new approach which I described. The elements of our stabilization strategy that I have outlined so far, will also stimulate economic activity. In addition, new construction projects and ongoing investment programmes in the Agricultural, Health and Education sectors are expected to have a positive impact on growth.

We have just begun a novel youth employment and training programme in conjunction with the private sector. It is designed to stimulate employment particularly among young people who are the worst affected group amongst the unemployed. This project together with other community-based projects, will relieve unemployment and help to stimulate the economy. In addition it will also equip the beneficiaries with essential skills which they can then make use of as they try to better their lives.

Let me also emphasize the importance of our policy of paying outstanding amounts owed by the Government to both individuals and businesses, for the attainment of higher growth.

Previous administrations allowed a hard core of payables to build up and remain year after year. This was hidden from public knowledge. Indeed, the former Government deliberately spent more than it could afford just before the May election in an attempt to buy your vote. This resulted in a greater accumulation of unpaid vouchers at the Treasury.

I am making every effort to meet these payments, as I believe that doing so will improve the economy by re-injecting some liquidity into the private sector, and by restoring confidence in Government's processes and capacity to pay. To that end, allowance has been made in the Supplementary Budget to pay off the bulk of these arrears. I want to punctuate this point B the Government of the St. Lucia Labour Party will be paying off the accumulated basket of payables that was inherited from the profligate spending of the last regime. We have made this financial provision, because we are a responsible government committed to restoring both public and private sector confidence in the economy.

Perhaps the most important objective for the future direction of the economy is that of the new strategic re-orientation. International economic relations are characterized by a new dynamic, and our ability to adjust to global realities will determine the speed and direction of our development.

The process of liberalizing trade and the movement of capital across national boundaries is continuing to gather pace. This is driven in part by the innovation and rapid expansion taking place in technology and telecommunications. Information is becoming more accessible and complex transactions involving persons in different parts of the world can now be conducted much more quickly. One implication for us is the need to develop the mechanisms to offer offshore financial services in a competitive manner. These developments are likely to continue, indeed to intensify in the foreseeable future. We must position ourselves to take advantage of the numerous opportunities available to attract resources, increase our income earning capacity, upgrade our skills and become effective players in global markets.

We are already familiar with one unsavory aspect from our point of view, of the movement towards greater trade liberalization: that of the effect on the banana industry in the CARICOM area. We have to address the problems in the industry in a holistic way, and encourage friendly nations which support us to intervene on our behalf. I will say more about what we are doing on the domestic front a bit later.

Another reality facing us is the position increasingly taken by developed countries that the higher per capita incomes of St. Lucia and most Caribbean Community countries in recent years, no longer qualifies us for obtaining financing on the most concessionary terms. Well, try telling that to the thousands of unemployed people who comprise 22 per cent of our work force! or those people who earn little above a subsistence wage and whose health is at risk because they cannot afford a nutritionally balanced diet.

There is a determination in the donor community to redistribute both financial and non-financial resources to the countries that are perceived to be experiencing abject poverty, particularly the economies in transition (that is, the countries of the former Soviet bloc) and some African countries. Aid has certainly dwindled and we must find increasingly creative ways to finance growth and development.

In addition, the growing international competitiveness and globalization of tourism are of particular relevance to us. Most countries, developed and developing alike, have begun to realize the vast potential of tourism and have consciously set out to develop it. The challenge for us is to find our market niche and develop the delivery systems to make it work in our favour. In so doing, we will also have to embrace the move towards mega cruise ship tourism which offers the tourist a varied holiday experience. Again, we must make these activities work for us by developing the right linkages between them and the rest of the economy.

Given the current state of the economy including the effectiveness of key sectoral and national structures, and the global trends which I have just mentioned, we perceived the need for a strategic re-orientation of the economy. Any new direction that we take must be forward looking. It must place us in the midst of international economic traffic with all the tools at our disposal to manoeuver our craft effectively. Moreover, it must give us the flexibility to adapt to the changing flow today, tomorrow and in the years to come.

If we fail to redirect our energies to cope with modern realities, then we will be condemned to some inconsequential backwater of history. That is why we need to embrace change - not for the sake of change, but for our economic survival and a more prosperous future. That is why as a nation we need to re-orient ourselves in a new strategic direction. That is the challenge facing us.


THE NEW STRATEGIC DIRECTION: INSTITUTIONAL REFORMS AND THE NEW ECONOMIC FOCUS

Mr. Speaker, permit me now to outline the main elements of the new direction being adopted by the Government. An important plank of the new approach is the re-designing of the management structures of the public sector, starting with those of Central Government. This process has already begun. It involves rationalizing the Ministries to make them more effective. For example, we have merged the Ministries of Finance and Planning under one Permanent Secretary. This has already borne fruit in the preparation of this budget. The process of medium to long-term planning is now more effectively linked to the short to medium-term budgeting exercise. Moreover, we have just begun a budget reform project aimed at revising and tightening up on every aspect of the budget cycle, from conception, to preparation, to implementation and review.

Other changes to the structure of Ministries were announced shortly after the May election when I selected my Cabinet and assigned the respective portfolios. Another important initiative is the soon to be established Public Sector Reform Unit which will be charged with the responsibility for managing the reform process. In addition, more qualified professionals have been brought into the Public Service. We believe in harnessing the talents of trained nationals to the task of nation building and we will encourage the private sector to do the same.

We can only find our niche in the new global environment if we make the journey together. The Government has already begun dialogue with its social partners, which is a pre-requisite for the achievement of our goal. We recently met the Trade Unions to discuss matters of mutual concern and agreed to meet on a regular basis. The Advisory Council to the Prime Minister which I announced some time ago, comprises a representative cross-section of the community. The Chamber of Commerce accepted my invitation to be part of the Government's delegation to the recent I.M.F. and World Bank annual meeting in Hong Kong. The President of the Chamber had an opportunity to establish contact with various organizations, and his discussions will undoubtedly benefit the private sector and St. Lucia in the future.

All these elements of the new approach are designed to strengthen the institutions, structures and arrangements that will provide the springboard for taking us into the 21st Century. However, two other aspects of our new direction which are related to economic activity must be mentioned.

The first aspect is our renewed emphasis on Tourism. Given the need to revitalize that sector now and in the future, the Minister of Tourism is undertaking a careful evaluation of the macro management structures in the sector. A consultant's study on the organizational structures of the Ministry of Tourism and the Tourist Board has been considered by Cabinet and is now being studied by the Ministry. In addition, the 1982 Act governing the operations of the Tourist Board is to be reviewed and improved to deal with the modern realities of the industry.

I have increased the marketing budget of Tourism by EC$1 million to enable the Ministry to strengthen St. Lucia's presence in traditional markets and break into new ones, diversify the tourist product offered to visitors, and improve national awareness through education and consultation. Again, this is consistent with our Manifesto proposal to increase, substantially, but over time, the amount allocated to the marketing of Saint Lucia as a A simply beautiful destination.

The second economic activity I mentioned is in the area of offshore financial services. This is perhaps the fastest growing industry in the world and we need to examine ways of providing such services that will
suit our particular circumstances. I have entrusted this portfolio to the Minister of Tourism, who will shortly be examining various options for the consideration of Cabinet.

Sub-Committee on Economy

Sound economic management necessitates the provision of reliable information and analysis on the economy. In the process of formulating macro-economic policy and to assess the performance of, and prospects for the economy, I have just appointed a sub-committee on the economy under my chairmanship and comprising all the Ministers responsible for various economic sectors. The committee will be advised by a technical group and will prepare reports and recommendations for the consideration of the whole Cabinet of Ministers. This approach will facilitate the formulation and evaluation of economic policy and strengthen our decision making. The committee will provide Cabinet with:

monthly reports on implementation of the Government budget, including revenue, expenditure, debt and the status of key development projects;

a quarterly update on economic performance, including growth, inflation, employment/unemployment trends where possible, interest rates and the movement of monetary variables;
recommend targets and forecasts of key economic indicators;

special sector reports/strategies for development; and

the identification and prioritization of programmes and projects.


Departmental Accountability

Mr. Speaker, this presentation has repeatedly emphasized the need for accountability whether in the public or private sector. In the society that we seek to refashion, no individual or organization, whether it is the private sector, non-governmental organizations, unions or Members of Parliament, should feel immune from accountability. As one Regional Prime Minister put it recently, those who govern (must recognize the obligation to have the decision they make subject to the critical scrutiny of those they govern. Nowhere is that obligation more sacred that in the Public Service. To induce greater focus, direction, accountability and national use of scarce resources, all ministries and departments will as of the conclusion of the 1997/98 Financial Year, be required to prepare Annual Reports outlining goals and achievements, against goals and work programmes, no later than three months after the end of the financial year.

These, then are some of the institutional elements of the new direction. They are intended to equip us with the tools to meet the challenges ahead with resolve and foresight. However, we plan to do so by encouraging people in their communities to become fully involved in making decisions that affect their own lives as far as possible. However, we view our efforts as part of a wider Caribbean effort and in particular as part of an even broader effort by developing countries to achieve economic maturity. The Ministry of Foreign Affairs and the other Ministries will spare no effort in collaborating with, firstly our OECS and CARICOM sister countries, and secondly with other developing countries, on matters of mutual interest. Alone or collectively, we must seek to forge linkages with other countries to mobilize resources for our development and secure a high quality of life for ourselves and our children.


Public Sector Reform

Mr Speaker, this Government regards the reform of the Public Sector, as being urgent as well as indispensable to the timely and successful implementation of our sustainable development strategies. In our Contract of Faith we identified a hierarchy of needs including the need to redefine the relationship between the policy-making and administrative arms of Government; the need to introduce greater accountability; the need for closer collaboration with the Private Sector, the need for continuing organizational review; and the importance of the quality of service provided by the Public Sector.
We signaled early our clear commitment to reforming the Public Sector inter alia, by the changes made in the grouping of various portfolios in the respective Ministries, and by the creation and activation of a post of Director of Public Sector Reform in the Ministry of the Public Service. From the public's standpoint, the full benefits of the regrouping of portfolios will be felt when all sectors of each Ministry can be housed under one roof. Despite this shortcoming however, Cabinet colleagues and public officers alike will attest to an improved policy-making environment.

Mr Speaker, this Government is committed to taking a consultative and participatory approach to Public Sector Reform. To that end, Government will announce before December, 31st 1997, the appointment of a Public Sector Reform Commission to guide reforms in the Public Service. There are however, certain initiatives which we feel we must introduce quickly, and I take the liberty of mentioning a few of them here, in anticipation of the fullest support of Public Service Unions.


Extended Role of Audit Department

The first initiative involves the creation of a comprehensive Auditing Unit within the Audit Department. The establishment of such a unit is intended to give to the Audit Department, a role that extends beyond the traditional regulatory audit, which seeks to determine whether funds were spent in accordance with legal and financial requirements. The comprehensive Audit Unit will help to determine whether monies were used in an efficient manner and whether programme results were achieved. While the Auditing Unit carries out this post-audit function, the Accountant General's Department, which also has a role in the management of the Planning, Programme Budgeting System (PPBS), will be strengthened to enable it to fulfil its pre-audit function.

Creation of Services Commission Secretariat

The second initiative involves the centralization of the Public Service Commission and the Teaching Service Commission respectively under one roof with common administrative services, and with one individual serving as full time chairman of both Commissions. In this way we will enjoy economies of administration. This arrangement is working effectively and efficiently in several other Caribbean and Commonwealth jurisdictions including Grenada and Malta.

Another feature of this initiative, Mr Speaker is the creation and activation of a full-time post of Legal Counsel to the staff of the Joint Commission Secretariat. This is intended to expedite the processing of the huge backlog of cases, which is before both Commissions, as well as new cases. We had to do this because we cannot countenance any delay in dispensing justice, neither can we countenance the outrageous costs involved in keeping persons on suspension with full or half-pay, whether or not such suspension is justified. This will also resolve potential problems of bias when the Commission has to rely on the advice of the Attorney General.

Mr Speaker, on the question of the inordinate costs involved, Government is compelled to take administrative action within its constitutional competence to deal with the wastage produced by the delay of the Public Service Commission in taking decisions in disciplinary cases. A recent report on wastage in the Public Service indicated that between July 1995 and September 1997, government spent $225,723.00 on salaries of public officers on compulsory leave pending disciplinary action. Of the twelve officers, nine are receiving full pay and three, half pay. Additionally, to date, Government has spent $48,766.00 on salaries to replace four of the twelve officers. The total current monthly expenditure for the officers on leave and the four replacements is $19,781.00. Mr Speaker, this state of affairs is unsatisfactory and requires speedy attention.

An important aspect of Public Sector Reform and of national human resource management, is our ability to optimize the use of our skilled manpower resource. There are many highly trained persons in the public service whose abilities are either lost to the Nation or are underutilized when they retire. At the same time the private sector often complains of a scarcity of trained personnel. Ideally, they would like to be able to make use of such persons before they reach retirement.

Voluntary Skills Transfer Scheme

Mr Speaker, we have devised a mechanism for allowing public officers who wish to go into the private sector, to do so on a voluntary basis. It is the Voluntary Skills Transfer Scheme (VST), under which persons who wish to transfer over to the private sector can apply for early retirement from the Public Service. They would then get a gratuity and their full retirement benefits. Such persons would be able to work in the private sector if they wished, or would be able to use their golden handshake as they saw fit. It would be entirely up to them.

Let me emphasize that the scheme will be entirely voluntary. Such transfers will augment the skills base in the private sector. The comprehensive forward planning for human resource development, and the capacity of government to undertake extensive training of staff will ensure that any loss of skills to the government is temporary.

The VST scheme will also help in the achievement of another objective. The government has been strongly advised that there is an urgent need to reduce its wage bill below 50% of current expenditure, in order to devote more resources to capital investment. The proportion of wages to current expenditure now goes up to around 53%. This is too high. The Voluntary Skills Transfer Scheme will help us to reduce the wage bill and to devote more resources to economic growth, while at the same time effectively redeploying on a voluntary basis, skilled manpower to areas of need. Let me assure the Public Service Union that the proposals will be discussed with them before implementation.

Mr. Speaker, while these initiatives are critical in their own right, it would be clear to all, that the overall goals of Public Sector Reform will not be achieved, unless there is (a) a consensus among public officers themselves that such reform is needed, and (b) a commitment to facilitate the reform process.

Over the past few months, Mr Speaker, I have been giving considerable thought to ways and means by which we might encourage this consensus and commitment. One of the ways that I have conceived is through the introduction of the Public Service Innovation Awards, which is intended to recognize individuals for conceiving and implementing practical measures, which help to improve the overall quality of the Public Service.

CHALLENGES FACING THE ECONOMY

The challenges facing the economy arise from two basic factors. Firstly, the fiscal and financial mismanagement of the previous Administration. This has resulted in lower Government savings than in previous years, a backlog of Government arrears and lower economic growth. Secondly, structural weaknesses and the poor performance of the banana sector have contributed significantly to the sluggish performance of the economy.

These two broad factors have different implications for Government policy. Action must be taken now to stabilize the economy, reverse the fiscal mismanagement and stimulate growth. On the other hand, the structural issues have to be addressed and the economy re-directed towards the path of sustained growth.

As I indicated previously, the outstanding payables at the Treasury on 23rd May amounted to $20.3 million, some of which was deliberately incurred for the May election. The payment of this money to the individuals and businesses owed by Government could have made much-needed liquidity available for private sector business activity. We have reduced the outstanding payables to around $15.8 million since May. Achieving this has been extremely painful. We have had to squeeze services to the bone in order to find the necessary resources.

In addition, it is no secret that with the exception of the St Lucia Air and Sea Ports Authority and the National Insurance Scheme, most of the statutory boards and Government-owned agencies have been inefficiently managed for years. Nearly all of them are bankrupt.

We estimate that the Government's current surplus will decline from around $54.7 million in fiscal year 1996/97 to only $16.0 million in the current fiscal year. However, this is not entirely due to financial mismanagement. There will be an estimated shortfall in current revenue of around $9.2 million, primarily because of the sharp decline in the banana industry this year.

This year, Banana production was down to 51,979 tonnes at the end of September compared to 79,209 for the period January to September last year. This represents a decline of 34.4%. Income from banana exports also declined by 49.1% cent over the same period. Given the importance of the banana industry to the economy, such drastic reductions were bound to have an adverse effect on economic performance and on Government's finances.

Economic growth is expected to fall from 1.9 per cent last year to around 1 per cent this year. Last year's growth rate was the lowest since 1987, while this year's is expected to be the lowest since 1980. These growth rates are in contrast to the relatively high average growth of 8.3 per cent between 1986 and 1990, and 3.4 per cent between 1991 and 1996.

Manufacturing, construction and the wholesale and retail trades which recorded negative growth last year of 1.2 per cent, 1.5 per cent and 4.3 per cent respectively, are not expected to fare much better this year. The decline in the banana industry has had an adverse effect on those three sectors. The prospects for bananas are neither rosy nor hopeless in the short to medium term, though we can expect the preferential arrangements that we enjoy to be continuously eroded. While we fight internationally with the support of friendly nations., to retain our preferential treatment in Europe, we must improve productivity and increase output at home. I shall announce how we intend to address this shortly.

The sluggish economy along with an inefficient revenue collection system and a tax system which lacks buoyancy, have all contributed to the decline in Government revenue.

Investment can be the driving force of growth if its level and composition are appropriate. Most investment is undertaken by the public sector, but the overall level of investment is generally too low to generate the target growth rate which I shall explain shortly. Also, too much private investment is concentrated in residential and office structures and not enough in the three main productive sectors of Tourism, Agriculture and Manufacturing. Consequently, output, export income and employment are low. For example, an unemployment rate of over 20 per cent is unacceptable.

Mr. Speaker, the various problems that I have described have given rise to the poor liquidity situation faced by both the public and private sectors. The liquidity position of the banking sector worsened last year, with the loan/deposit ratio moving from 89.6 per cent in 1995 to 94.7 per cent in 1996. At the end of August, 1997 it had worsened again to 99.4 per cent. Even the private sector has been starved of liquidity. As a result, interest rates on bank borrowing remain high, making investment expensive and operating costs steep.

It is imperative that I take immediate action to stabilize and stimulate the economy. At the same time, I must begin the re-structuring process in order to put the economy back on a long-run, self-sustaining growth path.

The specific measures that we have identified will also take into account the strengths of the economy, strengths on which we must build the future.

The positive aspects of our recent economic performance include:

a low inflation rate of 0.9% last year and anticipated inflation of around 0.8% for 1997. This is mainly due to external factors;

a low external debt servicing to export ratio of 4.4 percent in 1996 which is expected to rise somewhat for 1997, given the decline in banana exports. In addition, external debt as a percentage of GDP stood at 29.1 percent last year and is not expected to be significantly higher this year. However, both external debt servicing and external debt outstanding will rise next year as we contract new loans to help stabilize and stimulate the economy. Although the debt ratio will still fall well within internationally acceptable limits, we are conscious that there will be a bunching of debt payments around the year 2002, because of the specific repayment schedules of previous loans. We need to prepare for that eventuality.
The tourism sector continues to expand, with the number of stay-over visitors growing by 5.2 percent over the period January to September 1997, compared to the same period last year. The number of cruise ship visitors has grown by about 68 percent up to August this year. The development of the Tourism sector is a cornerstone of the Government's economic strategy, particularly with respect to stay-over visitors.

Mr. Speaker, these positive developments as well as the challenges have been considered in formulating both the short-term and long-term objectives enunciated in this Supplementary Budget.


ECONOMIC AND BUDGETARY GOALS AND TARGETS

We have set ourselves a number of specific short term and medium term goals and targets for achieving stabilization, stimulating growth and redirecting the economy.


Short Term Targets

(a) The most important objective of the Government in the short term is to tackle the horrendous unemployment and under-employment problems which this Government has inherited. Unemployment is a scourge; it dehumanizes people; it undermines family life; it destroys self-worth and confidence.

The Government is conscious of the fact that the exact unemployment rate in Saint Lucia has never been authoritatively determined. This state of affairs cannot be allowed to continue. Some have put the unemployment rate at 22%, others at 25% and most recently in April 1997, at 29%. A government should be in a position to state the unemployment rate at any one time, and show what action it has taken to reduce the incidence of unemployment. This index is too important to leave to speculation. A government that insists on accountability should never be afraid to subject its decisions to the critical scrutiny of those who empowered them to govern. Consistent with this view, the Eastern Caribbean Central Bank has been approached to support a study to determine the unemployment rate in Saint Lucia. The availability of such data will allow the public to assess the performance of the government on this critical index..

Mr Speaker, the Government seeks to generate employment in the short-term through a variety of measures. Firstly, it has established the Short-Term Employment Programme (STEP). It will step up essential and badly needed maintenance and deploy further resources to the improvement of waste management and landscape beautification. As stated elsewhere, the Government proposes to initiate capital investments that will stimulate economic activity. The details of these activities will emerge when the Public Sector Investment Programme .

(b) A second short-term objective is directed at increasing Central Government Savings from the 1.4 % of GDP during this fiscal year and increasing it to 2.5% next fiscal year, and to 3% the following year.

(c) A third objective is to eliminate all subventions to the parastatals which are required to be self-financing by the end of February, 1998. Moreover, self-financing parastatals will ultimately be required to make minimum returns of 12 % of their equity. Dividend payments will be made to a government fund to be established for further investment.

A fourth objective is to reduce the outstanding payables. By March, 1998, we propose to reduce this amount to EC$5.8 million and to a maximum of 1% of current revenue by the end of 1998/99 fiscal year. This is to reduce the adverse effect of government arrears on private sector liquidity.

At the same time, it is proposed to increase bank liquidity by lowering the loans/deposit ratio from 99.4% at the end of August to 95% by the end of the fiscal year 1998/99 and to 86% the following year.

Medium Term Targets

So much for the short-term. We now turn to medium-term objectives. Essentially, the Government proposes to establish a framework which would achieve the following:

(1) Assist in creating at least 3,000 new jobs per year, which would absorb new entrants into the labour force and reduce unemployment levels by no less than two percentage points per annum. This target is well within our grasp, especially following the implementation of the Short-Term Employment Project (STEP).

Eliminate extreme and benign poverty in St Lucia through programmes aimed at poverty reduction.


Establish the conditions that would allow annual growth of at least 5% to be generated. We do not have complete control over the growth rate, but we can create some of the conditions that would facilitate economic expansion.

(4) Allow the Caribbean Development Bank to implement measures from the CARICOM Policy and Plan of Action Towards Creative and Productive Citizens for the Twenty-First Century. This would specifically seek to have:

(a) at least 70% enrollment of students in secondary schools with the aim of providing universal secondary education by the year 2002;

(b) at least 10% of the population having received tertiary education with the aim of having 15% by the year 2005.


BUDGETARY POLICIES, PROPOSALS AND MEASURES

Mr Speaker, I now turn to the specific measures and proposals of this Supplementary Budget. This is not a heavy taxation budget. Indeed, the tax measures generally provide relief rather than pain. The budget is, instead, meant to breathe new life into the economy by stimulating output and redirecting our efforts along more practical and ultimately rewarding lines.


TOTAL REALLOCATED NEW


Current Expenditure 51.7 35.7 16.0

Capital Expenditure 73.3 24.8 48.5

(Government Revenue) (19.4) (11.9) (7.5)

(Grants) (13.9) (2.2) (11.7)

(Loans) (40.0) (10.7) (29.3)

Total Expenditure 125.0 60.5 64.5
________________________________________________________________________
You will note from what I have just said, that total current and capital expenditure to be financed out of local government revenue in the Supplementary Budget, is $23.5 million. Capital expenditure accounts for $7.5 million, while the balance of $16.0 million represents a provision for various current expenditure items.

The main items that make up the $16.0 million of additional current expenditure are:

(i) a $3.2 million subvention to WASA which we will be discontinuing by the end of the year.

(ii) $2.1 million in retirement benefits to Parliamentarians which, according to section 10 of the Retiring Allowances (Legislative Service) Act, must be paid within Aninety days of the due date after Parliamentarians retire whether compulsorily or otherwise. In some cases these benefits relate to the extensive period of time over which members of the previous Administration were in power. I note that this item was severely under-budgeted for by the previous government. Given the indecent haste with which the April budget was forced through this Honourable House, so close to the May General Election, a time when the writing was surely Aon the wall, I marvel at the shortsightedness of the last Administration. Perhaps they could not or did not want to believe that they would have to retire B or to put it more accurately, that they would have been summarily retired by the people.

(iii) A provision of $3.5 million for additional debt servicing. This is necessary because of the extra borrowing which we must undertake to stimulate and re-direct the economy.

(iv) An amount of $2.5 million to replenish the Contingency Fund. We must have such a fund for inescapable and unforeseen expenditure. This allocation increases the original amount from $1.5 million to $4 million, a figure that is wholly inadequate given the overall size of the budget. However, that is all we can afford, given the current financial situation.

In addition to the $7.5 million for capital projects which we had initially planned to finance from local revenue, we propose to spend a further $41.0 million on capital projects to be financed from earmarked grants and loans. I mentioned earlier that we planned to issue development bonds and market them locally and in the region. The total bond issue will be for $45 million for 10 years at an interest rate of 7.5%.

The bond issue will finance the $7.5 million for capital projects which should have come from local revenue on which there is now a shortfall. In addition, the bonds are earmarked for $21.5 million of the expenditure under the Aloans category, as well as the $16 million of recurrent expenditure which I spoke about earlier. In general, $29.0 million or 64.4% of the proceeds of the bond issue will be for capital projects.

In total, the new expenditure provisions that we have made amount to $64.5 million, which is fully financed by the bond issue, other loans and grants from international organizations and other countries as well as domestic loans. The reallocated expenditure of $60.5 million which I referred to earlier, reflects the re-structuring of ministries and departments that we have undertaken. We do not have to find additional money for this. It is merely a matter of transferring allocations from one AHead or from one ministry to another.

As I indicated earlier, the Government is committed to absorbing the St Lucia Banana Growers Association debt. Once the Association is privatized, Government will finalize arrangements with the Association and its creditors for its reduction over time.

In addition, we intend to reduce the Treasury payables which now stand at $15.8 million, by a further $10.0 million by March 1998, in order to improve the liquidity of the economy. The payables have already gone through the Treasury system as expenditure but have not been paid out. The reduction by $10 million will of course, have to be financed. We estimate that we will realize some $7.5 million in revenue as the economy responds to the stimulus of this budget, and a further $2.5 million from improved collections and waste reduction measures.

It is worthy of note that most of the proceeds from the bond issue are expected to come from external sources, as are all the grants and loans. Even the loans from the domestic banking system (e.g. from the Caribbean Banking corporation for the Short-Term Employment project) will be sourced from outside St. Lucia. This in itself will improve the general liquidity situation and stimulate economic activity.

Mr Speaker, in keeping with the Finance (Administration) Act No 3 of 1997, and in keeping with conventional practice, I have presented this Honourable House with the details of the proposed appropriation for 1997/98. However, I am unhappy that the traditional approach to preparing supplementary budgets does not fully reflect all the components of a normal income-expenditure statement. For example, shortfalls in revenue, of which there have been many in the past, have not normally formed part of the Supplementary Appropriation Bill.

As part of the Budget Reform Project which I mentioned earlier, we will review these procedures and practices. We are committed to full and timely disclosure of the public finances. Bearing in mind the process involved, the new systems will be in place and functioning by the next financial year.

Increase in the Establishment of Police Officers

It has long been recognized that the Police Force is operating under severe manpower constraints. Unless we address this problem, nobody in our society will be safe and free. Saint Lucia will not emerge as an attractive place for people to do business.

As a preliminary measure, Government has agreed to increase the establishment of police officers by fifty; incurring additional expenditure of EC$332,565. Saint Lucia has a ratio of one police officer to every two hundred and fifty-seven citizens. Compare this situation to the other islands.

Caribbean States Police Officer Population

Antigua & Barbuda 1 123
Bahamas 1 103 plus Army
Barbados 1 180 plus Army
Dominica 1 182 plus Army
Grenada 1 125
Guyana 1 210 plus Army
Jamaica 1 242 plus Army
St Kitts/Nevis 1 93
St Vincent & the
Grenadines 1 190
Trinidad & Tobago 1 270 plus Army
Saint Lucia 1 257

Clearly, there is urgent need to increase the manpower levels in the Police Force. By December, 1998, the Government intends to bring the ratio to at lease one police officer to two hundred citizens. This would require a force of seven hundred and twenty-five police officers, an overall increase on one hundred and twenty-five officers.

Agriculture

Mr Speaker, elsewhere in this address, I have stressed that the short-term prospects of the economy rest heavily on the performance of the banana industry and tourism. Already there are positive signs of confidence and recovery. Production is slowly increasing from its lowest of 823 tons in week 33 to 1,333 tons in week 43. The Certified Farmers Programme is now well underway. The new packing sheds are being build at a rapid rate.

Mr Speaker, this industry can survive but only if we have the courage to modernize it. Our farmers are trying, but they need help, particularly in respect of drainage and irrigation. Despite the difficult fiscal position, EC$1 million is allocated to the Ministry of Communications and Works to meet the cost of undertaking urgent drainage works in the banana sector.

Foreign Investment

Mr Speaker, the Government recognizes that insufficiency of capital and resources, the unavailability of appropriate technology in Saint Lucia, often compel our local investors to enter into joint venture arrangements. In any event, in these competitive times, it is becoming even more difficult to attract direct foreign investment.

One barrier to direct foreign investment is the provision in the Aliens (Landholding Regulation) Act, No. 10 of 1973, as amended, deeming a company to be under alien control, if, inter alia, more than one-fourth of the nominal amount of its issue shares or more than one-fourth in the number of its members are unlicensed aliens. In order to boost joint venture investment, Government proposes to increase the 25% stake to 45%. This measure will make it cheaper and more attractive to the foreign partner to invest some more while still leaving the company firmly in the control of the local investor.

Special Development Areas

Mr. Speaker, in any society it is dangerous to create enclaves whether defined by class, race, or economic circumstances. There is even greater discomfort where such development is expressed in spatial terms. Unfortunately, the specter of spatially determined development looms large in our island.

In many ways, this little island of ours is blessed. Our natural beauty is shared by all of our communities, whether in the north, south, east or west. Indeed, our development options are virtually suggested by our topography. Soufriere and its southwestern hinterland offer immense possibilities for investment in tourism. Babonneau is an agricultural hinterland of tremendous importance to our watershed preservation but with unique opportunities for nature tourism and mountain biking that is tied to community provision. Vieux Fort and its environs offer opportunities in manufacturing, tourism, and duty free facilities.

It is critical that we arrest the drift from the rural communities to the urban communities in the north. Suffice it to note, that population growth and economic development have exerted considerable pressure on the island's social and physical infrastructure. These trends can only be contained if we move rapidly to develop the potential in other communities.

To that end, and consistent with our Contract of Faith, Government intends to enact legislation to declare certain areas special development areas. Government's role will, essentially, be that of an enabler, or if Honourable Members prefer, a catalyser. Government will make imports intended for investment in these areas duty free and will provide income tax relief as well as investment allowances to persons who broaden the scope of existing business activity or engage in designated investment, provided that such investment is consistent with the development plan of the area. For example, Soufriere will be designated a Aspecial tourism development area. Thus investments which enhance Soufriere's heritage tourism, or expand services connected to its berthing facilities or which broaden the scope of business activity in tourism related services, will qualify under the scheme.

Allow me, Mr. Speaker, to bring a little comfort and excitement to the Honourable Member for Anse-La-Ray/Canaries. I wish to advise him that I propose to designate that constituency as a Special Development Area.

I am advised that the legislation will receive its first reading at this sitting of this Honourable House. Further details will be provided as the Bill makes its way through Parliament.

Conservation and Beautification

Mr. Speaker, one of the matters which has caused serious distress is our unsightly and unhealthy natural environment. This is neither good for our health nor our tourism industry. Mr. Speaker, Honourable Members, are we doing enough to preserve and enhance St. Lucia's traditional reputation as the beautiful Helen of the West? What does beauty mean? Must it not mean a healthy, clean, attractive environment where people are happy, contented and blossoming to their full potential? If it means what I have suggested, then we must do something about it.

Mr. Speaker, this Government is anxious to enhance our environmental heritage. It proposes to establish a National Conservation Authority whose responsibility will be to clean and beautify our beaches, engage in landscape beautification, assist in clearing and maintenance of our cemeteries, and the sides of our roads. To achieve these objectives two steps will be taken. Firstly, the Parks and Beaches Commission Act, No. 4 of 1983, will be repealed. The relevant provisions of the repealed Act will be absorbed in the new legislation. Secondly, the landscape artists, that is, those persons who are employed as caretakers by the Ministry of Communications, Works, Transport and Public Utilities, will be transferred to the National Conservation Authority.

Honourable Members will note that an allocation of $1 million has been made in the Supplementary Estimates for this Authority.

Poverty Reduction Programme

Mr. Speaker, there are many indices by which the performance of a Government may be judged. Some may take solace from impressive rates of economic growth, or increases in output, or from number of housing starts, or by an expansion of our road network. In the final analysis however, Mr. Speaker, the most important yardstick can only be the degree of sustained improvement that is created in the quality of life of the people.

It was out of recognition of the fact that the traditional indices did not accurately reflect the degree of improvement in the social conditions in a country, that the UNDP a few years ago introduced what is called a Human Development Index or HDI. The HDI is still being refined Mr. Speaker, but its central thesis and purpose has been accepted by many developed and developing countries alike.

Mr. Speaker, we in this Government have consciously agreed to use another yardstick by which to judge our performance. We have agreed to use the Poverty Reduction Index, and in this respect, our benchmark will be the results of the Poverty Assessment study which was conducted in St. Lucia in 1995.

The results of this survey make for very depressing reading. The survey concluded that at the national level some 18.7% of the households in St. Lucia can be considered poor on the basis of their expenditure on food and non-food items; 5.3% can be considered indigent, in that they do not have a level of expenditure consistent with fulfilling their food requirements.

At the community level, Mr. Speaker, a much bleaker picture emerged. In the ten communities surveyed, the percentage of self evaluated poor ranged from 11.1% in the New Development Area of Soufriere to 73.4% in Belmont. The demographic profile of these poor communities show that the majority of households are female-headed. These range from 23.8% in Bacadere to 80% in Baron's Drive, Soufriere.

Permit me to quote from page 30 paragraph 2 of the Draft Report as follows:

Living conditions for households in these poor communities are, forthe most part appalling. Proper roads, adequate portable water supply, toilet facilities, transportation facilities, proper housing and sanitation are lacking in almost every community, both urban and rural. Very few of the households in the rural areas do in fact earn an income from farming. None of the household heads who have access to agricultural land received this land through land development or resettlement programmes. Land distribution and land ownership is seen as a problem given the present institutional arrangements with regard to tenure and occupancy ...

So much for the development we have enjoyed!

Mr. Speaker, this Government, the Government of the St. Lucia Labour Party, commits itself unswervingly to changing this depressing situation. Here's what we will do, Mr. Speaker.

Firstly, we will establish a Social Investment Fund composed of resources earmarked for this purpose from the Basic Needs Trust Fund, and the 1994 Stabex. Government will be contributing an additional EC $1 million in this Supplementary Budget to the Fund. We will be seeking technical support from the Caribbean Development Bank in refining the institutional and financial arrangements which I have just announced, and also with the formulation of a Poverty Reduction Plan.
Mr. Speaker, it is critical that the thrust of the Government's proposal is appreciated and understood. The assault on poverty is not about providing charity to deserving cases. It is about providing encouragement, an opportunity to enjoy what we all crave B sustainable livelihoods. It has to be about encouraging enterprise, providing our poor with the tools to help them create their own self-sustaining economic opportunities.

Mr. Speaker, Honourable Members, the Government proposes that the funds be accessed directly by communities and community organizations. The Fund must be demand driven. Community sponsorship and ownership will be the key factor for the approval and sustainability of the projects. Government will ensure that funding is equitably distributed, so that no one community dominates in accessing the resources of the Fund.. The Fund will be administered by a board comprising representatives of non-governmental organizations, the private sector and the public sector. Legislation will shortly be introduced in Parliament to institutionalize the Programme

Secondly, Mr. Speaker, we will be reviewing and redirecting the traditional forms of assistance which were intended to benefit the poor, but seldom reach them. We have already started this with the School Books Programme, and the School Feeding Programme is shortly to come under scrutiny.

Thirdly, Mr. Speaker, we will move aggressively to improve the living conditions in poor and depressed communities. With technical and financial assistance from the CDB, we will be implementing a Flood Control Project in Castries, Anse-la-Raye and Vieux Fort in the first instance. Terms of Reference for technical assistance to determine the scope and design of this project have already been prepared, with a view to implementing this project during the next dry season.

Fourthly, Mr. Speaker, we will move to improve living conditions at the household level, by firstly making available land in planned settlements islandwide, and by moving job creation programmes into poor communities. In this regard, we recognize that there is a high correlation between ability/education and poverty. We are committed therefore to the creation of additional employment and work Experience Programmes. I am pleased to announce that Government has secured technical assistance from the CDB, to facilitate design of these programmes.

Fifthly, Mr. Speaker, we must and we will address the serious housing problems of the poor and low-income groups, details of which will emerge in my comment on Housing.

I should also mention, Mr. Speaker, how pleased we are in Government to note that Geest Estates will be undertaking a settlements upgrading and rationalization programme, on lands which it owns at Goodlands, Cul-de-Sac and Roseau. On completion of the programme, these lands will be sold, much of it to persons who have occupied them for decades. To ensure that the sale of the land is subsidized, Government has agreed to support the project, through the waiver of duties and taxes on materials used in the provision of infrastructure.

Finally, Mr. Speaker, to the all-important concern of financial sustainability for the poor. We share the view of the Managing Director of the National Commercial Bank that there is a role for commercial banks in alleviating the plight of the poor. We would like to encourage these banks to set up micro-finance windows, as part of their commercial operations, to channel loans to poor households and communities that will enable them to emerge from and remain out of the poverty trap. We need look no further than at the experience of the National Research and Development Foundation, and to the cooperatives, to realize that this approach can work. We shall be inviting the World Bank to hold a National Seminar for Commercial Banks and Micro-Finance Institutions, to share with them the interesting and encouraging results of a similar seminar which was held in Washington earlier this year.


Youth Skills and Enterprise Development Programme

Mr. Speaker, this Government places the highest possible priority on job creation programmes especially among our young people.

We expect that by the end of this financial year two major projects being funded by the European Union will get off the ground. I refer to the EC $10 million Rural Economic Diversification Incentives Project, and an EC $5 million Small Enterprise Development Project, both of which will target our young people. I am also pleased to announce Mr. Speaker, that the United States Government through USAID will make available a grant of nearly EC $3 million, half of which will go towards assisting small businesses, and the balance towards sponsorship of technical and vocational programmes.

May I say, Mr. Speaker, that we are particularly pleased with the thrust and the design of the Small Enterprise Development Project. This project will have a community focus, and will provide training and business advice to young entrepreneurs, in addition to making loans available for business start-ups through a revolving fund which will be set up for that purpose.

Employment Tax Credit

To further enhance our thrust in reducing unemployment and modernizing our management practices in the Private Sector, Government will provide an Employment Tax Credit to the Private Sector for the hiring of graduates. For each graduate employed, a deduction for salary expenses of 125% will be allowed. This measure will not only, we expect, open up new employment avenues in the private sector for graduates; it will also assist in infusing new skills in local business and will complement Government's long term goal of having 15% of the population achieve tertiary level education.

Reorganization of the Water and Sewerage Authority (WASA)

Mr Speaker, Honourable Members, I turn to the Water and Sewerage Authority (WASA). There is no statutory body in Saint Lucia which stirs up greater passion than the Saint Lucia Water and Sewerage Authority. Everyone has problems with WASA. The unions and employees have difficulties with management. The consumers receive extremely poor service. No one has confidence in WASA.

Mr. Speaker, Sir, WASA has been a complete financial disaster. The current level of accumulated deficits is approximately EC$16 million. On assuming office, this Government had to settle WASA's outstanding debt to LUCELEC amounting to EC$3 million. This has been done by issuing bonds. In addition, Government has been compelled to take over the payment of WASA's electricity bill in the amount of EC$350,000 monthly. In effect, between the commencement of the financial year and December 31st, 1997, Government will be spending on these items, EC$6,206,250 of the taxpayers' money on WASA. This does not include WASA's periodic loan payments to the Caribbean Development Bank which the Government has been meeting for some time now. This state of affairs is unacceptable.

WASA's insolvency has incapacitated its ability to attract any further investment to upgrade its plant and to expand. The Caribbean Development Bank has indicated its willingness to fund:

(a) The replacement of its 800,000 gallon steel reservoir at Ciceron with a 1.5 million gallon reinforced concrete tank. This has been estimated to cost EC$3. Million.

(b) A transmission pipeline between Ciceron and Hill 20, to supply households located at high elevations on the outskirts of Castries. This has been estimated to cost EC$4.6 million.

(c) A submersible pump and backup generating system to replace the 8 year old pump currently in operation inside the trunk main which supplies water to the areas in the northwest of St Lucia. The estimated cost of this project is EC$500,000.

The Caribbean Development Bank has indicated that it will link disbursements to the satisfaction of certain key operational performance indicators. The loan will not be approved until changes occur at WASA to guarantee realization of the indicators.

Likewise, the World Bank has indicated that it is willing to fund a waste-water management project at an estimated cost of EC$32 million, for the disposal of liquid waste in the greater Castries Area, but such assistance cannot be provided unless the institutional and financial viability of WASA is assured.

Several reports on the organizational, structural and managerial policies, procedures and practices of WASA have been undertaken in the past, the latest of which is the Thames Water International Consultancy. All these reports have emphasized the need for realistic tariff rates, the inability of WASA to finance investment in Water and Sewerage in rural communities, severe problems in financial administration, audit delays, and the lack of a business ethos and planning capability.

So much for UWP management and administration.

What is to be done? That is the question we face.

Having reviewed the situation, Government has decided to transform WASA into a corporate entity to enable it to become an effective self-financing business.. A new company will be registered under the Companies Act, to take over the assets and management of WASA by January 31st, 1998. New contract management structures and mechanisms will be put in place, especially during the transition stage between statutory status and corporatisation.

Mr. Speaker, irrespective of the status of WASA, the level and system of tariffs must be adjusted. However, this Government accepts that tariff adjustments can only be justified with improvements in the quality of service provided.

All changes breed anxieties. Government recognizes that the transformation of WASA will require the understanding and support of the public and the unions representing the employees. Government will immediately enter into dialogue with the unions concerned to ensure smooth labour relations during the vitally necessary but sensitive transitional management phase.

Commercialization and Privatization

Mr. Speaker, you will recall that in our Contract of Faith with our people we set out clearly our intention to commercialize and privatize certain State entities, as part of an overall strategy aimed at expanding the capital base of these organizations, and making available to Government much needed revenue, which it can reinvest in other areas of the economy.

While we are fully committed to this policy and strategy, Mr. Speaker, we are at the same time seized of the need for caution in ensuring, among other things, that the local economy can sustain share offerings when these are made and that locals are able to participate fully..

Mr. Speaker, Government wishes to keep its privatization and commercialization programme firmly on track, especially given its importance in the overall scheme of restructuring and revitalizing the economy. I therefore wish to announce that an office of Privatization and Private Sector Relations will be established in the office of the Prime Minister. The office will be staffed by a Senior Economist in the first instance. Technical assistance has been sought from the ECCB and the World Bank in setting up the office. As an initial step we intend to divest of a portion of Government's shares in the National Commercial Bank and the St. Lucia Development Bank, respectively. The proceeds of privatization and divestment

will be used to create a National Development Fund to spawn new and viable productive sector activity, possibly in joint ventures with competent private sector investors.

Mr Speaker we would like to see all St. Lucians from every walk of life become stakeholders in these new privatized enterprises. Therefore, we propose to offer to prospective individual St. Lucian investors, a tax deduction for shares purchased in these commercialized enterprises. We will offer an annual deduction of up to $5,000 for shares purchased. Mr Speaker we are sure that this measure will really make St. Lucians feel a sense of pride in owning part of an organisation which their tax dollars have helped to develop over the years.

Housing Development

Mr. Speaker, I turn to Housing Development. Here, the Government is poised to alter direction.

The Government will focus on low income housing as private developers and financial institutions are quite equipped and prepared to develop and finance middle and upper income housing. Three particular areas will engage our attention. The first is to explore the need to develop tenantry schemes that will make the lands which homeowners have been renting say for periods longer than ten years, to be made available to them and to help put in the necessary infrastructure, such as roads, water, electricity and sanitation services in these developments in an organized way. The second area will be to make fully serviced lots available in developments for low income families in all the towns, villages and other build up areas in St. Lucia. The third programme will be to make indigent housing available to the very poor who do not have the means to own their own homes. Our goal is to ensure that all St. Lucians particularly, low income families, have access to reasonable housing accommodation.

Of these three initiatives, the second will be given immediate priority.

In the next six months, preparatory and preliminary design work will be undertaken to establish low income housing sites and services programme starting with work on four communities in Castries, Soufriere, Vieux fort, and Dennery. This project will involve government providing, initially through the Housing and Urban Development Corporation, serviced lots with a small starter home with plans and access to resources for further expansion. This programme will be restricted to families or households with annual income under EC$15,000. Special arrangements will be made for mortgage facilities.

Mr. Speaker, in keeping with our commitment to ensure that every St. Lucian is afforded with the opportunity to own their own home, we propose to introduce the following tax measures to stimulate construction activity by private developers.

(1) The income accruing to any person from the construction and sale by him, or on his behalf, of residential accommodation in Saint Lucia. shall be exempt from tax. To qualify for tax exemption the following conditions must be satisfied:

(a) the construction is in an approved sub-division as certified by the Ministry of Finance and Planning;

(b) the cost of construction of such residential accommodation must not exceed two hundred thousand dollars per unit of housing or any other sum prescribed from time to time; and

(c) the number of houses constructed and sold in any income year should not be less than five.

(2) Additionally, if an individual wishes to construct housing for the purposes of providing residential rental accommodation in an approved sub-division, we propose to exempt from income tax, of any rental income accruing to that person from the leasing of such residential accommodation during a period of ten years after completion or construction, provided that the amount of rental does not exceed $500 per month or if higher, the proportion that $500 bears to the total monthly rental.

Mr. Speaker, we are aware that for some of our small scale construction firms, there are some pressures on their cash flows during the implementation of a project. One of the complaints is that the 10% withholding tax is too onerous on the small man. Presently the withholding tax is levied on both materials and labour. We propose to amend the Income Tax Act to allow for withholding tax on labour only. This is to ensure protection for the employees.

Encouraging Home Owner Investment Savings

Mr Speaker, Honourable Members, this Government realizes that prospective home owners may have some difficulty in saving up to purchase their own homes. Many young persons when they achieve a measure of economic independence are thinking of moving out and starting their own households. For some, the prospect of saving up to make a down payment on a home is often a monumental task.

We therefore propose to introduce a Registered Home Ownership Plan where for every dollar saved monthly, up to an amount of EC$6,000 per year, an equivalent amount by way of a tax credit will be granted. Membership in the plan would be for a minimum period of five years and will be open only to persons who have not previously owned a home. Any amount drawn down before the minimum period has elapsed will be taxed as income in the year of withdrawal. The amount saved will also attract interest at the prevailing savings rate which is also income that is tax free.

The plan will be managed by the commercial banking system and members of the plan will make their monthly payments to the bank or credit union of their choice.
The purpose of the system will therefore be to encourage savings and also to promote a culture of putting aside funds for investment in a piece of St. Lucia.

Incentives for the Manufacturing Sector

The Government of St. Lucia is committed to ensuring that our manufacturing sector emerges from the doldrums. To achieve this, we believe that linkages should be established with major consumers of products so that markets can be established for our manufacturers locally. This will eventually give them the necessary confidence to seek external markets as economies of scale are developed along with improving marketing and quality standards. Ultimately, it is our desire to see our manufacturing sector becoming net foreign exchange earners providing a truly unique St. Lucian product to the world.

To achieve this objective we propose to undertake the following policy initiatives:

- Establish linkages between the manufacturing sector and other sectors, paying particular emphasis to agro-processing, manufacturing and custom-tailoring.

- Establish a private sector investment fund.

- Strengthen the role of the Small Enterprise Development Unit;

- Encouraging dialogue between the manufacturing sector and the major local buyers.

- Protect, where necessary, local manufacturers by utilizing the mechanisms which are available under existing treaty obligations.

In order for our manufacturers to be productive, they need to feel that there is a demand for their product. Already, we are seeing some evidence of this in the private sector where major retailers of consumer items have established linkages with furniture manufacturers who produce items to their specifications. Similarly, we would like to encourage our local tourism sectors to establish similar links with our manufacturers in much the same way that they have established links with the farmers.

To stimulate this initiative, we propose to offer the tourism sector incentives to encourage their purchase of locally produced items. We will put in place an arrangement to extend income tax holidays based on the amount of locally manufactured items purchased. Thus, for every unit of a specified volume that is purchased, an extension of the tax holiday period will be granted. Our manufacturers too, will be given tax incentives, such as free duty free concessions on inputs for every contract negotiated to supply the tourism sector with their products.

To encourage the capitalization of manufacturing businesses and to provide them with working capital, we propose to establish a private sector investment fund, initially with an amount of EC$7 million. This window will offer financing at concessionary rates. The fund will be managed by the St. Lucia Development Bank. and will be accessible to the private sector at qualified commercial banks. This initiative fulfills another Manifesto pledge.

We are aware that many manufacturers lack organizational skills and are also unable to develop adequate marketing skills. Therefore, to provide help we will be enhancing and strengthening the Small Enterprise Development Unit. The unit will be strengthened to:

- establish linkages with financial agencies;

- provide management training, technical support, and consultancy services;

- provide opportunities for developing and adopting appropriate technological approaches;

- provide market intelligence; and

- provide guidance on quality standards.

The Unit will be staffed with competent persons who will be directed to offer as much help as possible to our manufacturers.

To encourage this linkage we will, over the next few months, bring together the manufacturing and tourist sectors so that opportunities can be established and new marketing arrangements can be explored.

Mr Speaker, the Government is aware that some of our local manufacturers, particularly those in the condiment industry, are under intense pressure on the domestic market because of regional competition. The Government has to walk a tight rope. On the one hand, it must honour its commitments to regional trade and competition. On the other hand, it recognizes that some support must be extended to our manufacturers to enhance their capacity to adjust and survive in the new competitive environment. We cannot run away from competition. Suffice it to say here, that this Government will, whenever it becomes necessary, invoke the relevant safeguard provisions under the Caricom Treaty to protect any industry or sector from threat or actual injury due to dramatic or sustained increases of imports into Saint Lucia from Caricom States. In this regard, the Minister of Commerce, Industry and Consumer Affairs, will shortly be meeting with two of our manufacturers, to discuss various approaches to resolving difficulties currently being experienced.


New Business Start-Ups

Mr. Speaker, we recognize that at this time it is necessary for government to encourage the development of small businesses. We are aware that there are many young persons who have ideas and would like to nurture these ideas in starting their own business. Sometimes

too, these young persons would like to join up with their peers and start a business of their own.

In cognizance of this fact, we would like to encourage the young enterprise spirit through the provision of certain tax incentives.

Presently, The Income Tax Act provides for charging new small businesses at a graduated rate of income tax on their taxable income over a three year period at 25% for the first income year; 30% for the second income year; and 33 1/3% for the third and subsequent income years.

The criteria for qualification for this incentive is as follows:

(a) The new small business must be incorporated during the income year.

(b) The business is wholly owned by citizens of St. Lucia.

(c) It employs not more than twenty persons.

(d) It has a gross income which does not exceed a quarter of a million dollars.

(e) It engages in the direct production of a tangible good; and

(f) It provides such services as may be prescribed and approved by the Cabinet of Ministers.

There have not been any measurable benefits to this incentive as they were not widely known and encouraged.

We propose to make certain enhancements to this tax incentive. These enhancements are designed to encourage the development of small businesses with the view that with continued support, the businesses may develop eventually to make significant contributions to the St. Lucia economy. Certain relationships will be developed to ensure the sustenance of the small business. There will be closer collaboration with the Ministry of Commerce through the provisions of the proposed Small Scale Business Enterprise Act and the Small Enterprise Development Unit (SEDU). The Act has as its objective, the provision of legislative support for the development of small scale business enterprises and to provide for developmental support, financial relief and other forms of technical support and advice in recognition of the importance of such enterprises to the economy.

The objective of the small business start up incentive programme is to offer to potential entrepreneurs more latitude in their selection of the areas of business activity. In other words, we want our entrepreneurs to be creative and we will give support to that creativity. To accomplish this, the SEDU will continuously monitor the market place to gather intelligence as to the preferred areas of business activity and advise the Minister of Commerce accordingly. The government will then approve that activity as part of the incentive programme.

To start the incentive programme, we will offer a pre-approved list of activities. This list is based on research activity of the SEDU and on input from the private sector. This list of activities is as follows:

Tourism:
Small Hotels
Restaurants
Eco-tourism sites
Nature tours/trailing
Medical Centre - specializing in water sport injuries
Entertainment Centres
Musical groups
Recording Studios
Campsites
Marketing
Limousine services

General:
Small engine sales and repairs
Recycling - e.g. plastics, paper
Industrial Parks
Laundry services (especially with tourism linkages)
Computer dealerships
Training and educational institutions - as approved by the Ministry of Education
Landscaping
Cleaning services
Driving Schools
Telecommunications/Information Processing
Alternative energy supply - e.g. wind, solar, bio-mass
Agro-processing - e.g. dried fruit processing, bottling, canning etc.
Agricultural diversification projects (inclusive of horticulture and fishing)
Leather craft
Custom tailoring

The following tax incentives will be offered in the small business start up programme:

(1) The business must be newly incorporated and wholly owned by citizens of St. Lucia who have not been owners of previously incorporated businesses in St. Lucia. The business should employ not more than forty (40) persons and have a gross income which does not exceed one million dollars. Additionally the business must engage

in an activity prescribed on the list of preferred business activity as approved by the Minister of Commerce in accordance with the provisions of the proposed Small Scale Business Enterprise Act. The business must satisfy the provisions of that Act.

(2) As part of our desire to encourage St. Lucian nationals living abroad to come back home, we will offer an investment credit of 10% on the capital expenditure incurred on the provision of plant and machinery acquired and brought into use by that person for the purpose of producing assessable income. The investment in the plant and machinery must be made from external sources. This investment credit will be in addition to the normal capital allowances granted by the Income Tax Act.

(3) All the legal and other incorporation costs related to the setting up of the business, up to a pre-determined limit, will be allowed as a tax deduction in the year of incorporation.

(4) Additionally, the new business start up will be subject to the following five year graduated Income Tax rates:

(a) for the first income year 15%
(b) for the second income year 20%
(c) for the third income year 25%
(d) for the fourth income year 30%
(e) for the fifth and subsequent income years 33.3%

Tax Arrears and Tax Review

Mr. Speaker, any government must be concerned about the collection of its tax accounts receivable. If we do not collect our arrears then the government must supplement its revenue through borrowing, which sometimes must be at market rates. We are particularly concerned about the arrears situation for Hotel Accommodation Tax and Travel Tax. These are taxes which are not levied on the operators of these enterprises but on their customers. Therefore, the taxes are collected on behalf of the government and are held in trust for onward remittance to the government at prescribed dates.

We intend therefore to strengthen the penalty clauses in the legislation enacted to manage the collection of these taxes. Thus, for example, we propose to introduce a penalty of 10 % of the tax which should have been collected in respect of failure to collect or to account for tax collected and interest will be charged at the rate of 15% per annum on amounts not remitted.

We believe in parity of treatment in the imposition of penalties for the late payment of tax monies that are due. The Government will pay for the first time, interest on outstanding income tax refunds to customers, if the amount of the refund has been determined by the Inland Revenue Department and is more than six months late. This is just and equitable and will be introduced during the next fiscal year.
Review of Direct and Indirect Taxation

Mr Speaker, the Government is about to undertake a complete review of the taxation system, with a view to achieving the right blend of direct and indirect taxes. An inappropriate mix can have the effect of stifling initiative, impairing efficiency and reducing productivity.

The tax regime must be fair and just, and ought not to impose a disproportionate burden on some sectors relative to others. The consultants mandated to undertake the review will among other things, take into account incentive and disincentive effects, ability to pay, equity, tax effort and tax burden considerations, and regional and international competitiveness issues. The private sector, the trade unions and the parastatals will be consulted during the course of the review.

CAPITAL INVESTMENT PROGRAMME

Public Sector Investment Projects

Mr. Speaker, you will recall that very early in the life of this Parliament, I announced that this Government will be aggressively pursuing the design and implementation of a number of public sector investment projects, in an attempt at boosting the economy through the creation of jobs in the construction sector. This sector has traditionally played a critical role in the economy, contributing between 8% to 10% of total output. At the same time activity within construction sector has traditionally been driven by public sector projects. The decline which has been evident in the sector over the past three years or so is directly linked to the reduction in the number of large public sector projects.

In embarking on a new programme of public sector investment projects, this Government is taking a fresh and innovative approach. Firstly, we are trying to reduce the pressure on the Consolidated Fund by mobilizing direct foreign investment from non-traditional sources. Secondly, we are trying wherever possible to link foreign investment inflows to the transfer of technology and know-how. Thirdly, we are trying to reduce the demand which traditional approaches have placed on our technical personnel within the Public Service, in the process freeing them up to undertake planning and design work.

It is with this new vision, this new thinking that the Government began its phase of the relationship with the National Insurance Property Development Company of Trinidad and Tobago, more popularly known as NIPDEC. In this Company, we found an entity with a wealth of knowledge and experience in designing, financing, building and operating various facilities in many islands of the Caribbean. NIPDEC is a rare breed. It is one of the few companies willing to invest in public sector projects.

With the enthusiastic approval of the Cabinet of Ministers we have confirmed an agreement with NIPDEC to play a lead role in the implementation of the following projects.


Multi-Storey Car Park

The first project involves the construction of a Multi-storey Car Park on Jean Baptiste Street, on that vacant parcel of land between Government Building and the Darling Road Housing Facility. The Car Park Facility will cost approximately EC $21.6 million, and will accommodate about 300 cars, in addition to providing commercial space for offices, banking, a food court, and a Day Care Centre, the need for which was confirmed through a survey of the office buildings on the waterfront. The inclusion of this facility is entirely consistent with this Government's commitment to be a caring Government. The parents surveyed expressed concern about the security of the centre. We gave them the assurance that security of the entire facility will be given the highest priority.

The construction of the Car Park will not have an immediate impact on the Consolidated Fund, except for the cost of relocating a few small buildings that lie in the path of a rear access road to the proposed facility. The primary source of financing for the facility will come through a Joint Venture arrangement between the National Insurance Scheme, NIPDEC and the local private sector. A Company is being formed for this purpose, and we encourage the local private sector to participate fully in this important endeavour. The employment generation capacity of the project is estimated at 250 persons during the construction phase.

Mr. Speaker, Government is painfully aware that the construction of this Car Park Facility will not resolve the serious parking problems that plague this city. Studies indicate that at least two car parks, and two bus terminals are required. The Ministry of Communications, Works and Transport is examining the various options for siting these facilities, and I expect to be in a position to announce concrete plans in this regard, in my April 1998 budget.

The second project for which we have engaged the services of NIPDEC, is the construction of a Headquarters Building for the Ministry of Communications, Works and Transport.

New Building for Ministry of Communications

Mr. Speaker, you will recall that earlier this year the deplorable working conditions at the Ministry of Communications sparked a protest from workers. Many valuable days were lost, as the workers withdrew their labour, and as the last administration frantically searched for solutions to the problem. But this Government, Mr. Speaker, holds firmly to the view that an issue deferred is not a problem solved, rather it often engenders a crisis. We also found no merit in challenging long established industrial relations principles, which emphasize the relationship between a clean and healthy working environment, and high, sustained productivity levels.

Against this background, Mr. Speaker, we have dealt with the problem head-on in the following way. We decided to condemn the existing building and to establish a new three-storey building on property owned by Government at Union. The building will make available 32,350 sq. ft. of air conditioned office space in an architecturally attractive and environmentally pleasing setting. The building will comfortably accommodate all the existing Departments and units of the Ministry, except for the heavy equipment operations which will remain at Dennery. Public Officers will be pleased to learn that the design of the outdoor facilities includes a well-lit multi-purpose hard court, a playing field and a small clubhouse type building with changing rooms.

The entire facility will cost EC $14.7 million, and will be undertaken through a Build, Own, Lease and Transfer arrangement (otherwise called ABOLT) with NIPDEC. NIPDEC as developer, would be responsible for the design, finance and construction of the facility. On completion of the construction phase, NIPDEC would lease the building to the Government of Saint Lucia over a fifteen year period at the end of which ownership would be transferred to Government at a nominal sum.. Designs have been completed and all legal requirements have been fulfilled. Work on the headquarters facility is expected to start in the final quarter of this financial year. It is expected that a total of 200 nationals would e employed during the construction phase of the project.

Until such time as the project is completed, the Ministry of Communications will operate from various locations with main bases being the Fitz Williams Building on Bridge Street and the former Beach Haven Hotel at Vide Bouteille. Permit me to assure tourism interests Mr. Speaker, that this hotel building will revert to its intended use as a Hotel Training School, as soon as possible after work on the headquarters building has been completed.

My final note on this project is to announce that Government will be putting up for sale the property which formerly housed the Ministry of Communications and Works. We are advised that certain companies with shipping interests have long expressed an interest in acquiring this property, and so we expect that some badly needed revenue will soon flow into the Consolidated Fund from the sale of this property.

National Prison Facility

The third project for which we have engaged the services of NIPDEC, is the construction of a National Prison Facility at Bordelais in Dennery.

Mr. Speaker there are those who have questioned the wisdom of spending $48 million on the construction of a new Prison. Some have argued that this money would be better spent on schools, roads, a new hospital, etc. Frankly, as Minister of Finance, I would much rather not having to spend money on a new prison. But as I said earlier, an issue deferred is not a problem solved. Government cannot pretend that the need for a new Prison does not exist. The simple fact of the matter is that we have a full-scale crisis on our hands, and the longer we take to address it, the greater the peril that we will face. We cannot compromise our security.

There is a great deal more that I could say on this subject, Mr. Speaker, but I will leave this to the Hon. Minister for Home Affairs. Suffice it to say, this Government is moving steadfastly towards the design and establishment of a Penal System that is firm and secure, but which is also rehabilitative in its vision and purpose. We are moving to create a system that offers a second chance to those who demonstrate a commitment to re-entering society and to working and living within its norms. At the same time, we are seeking to create a prison system that keeps away from society those who have repeatedly offended society, and who have demonstrated that they are unable or unwilling to renounce crime.

It is against the background of this new philosophy Mr. Speaker that we are embarking on the construction of a Prison Facility, which is only a part of the refocused Penal System that we are seeking to establish.

The Prison Facility will be built using the Design-Finance-Construct mechanism with NIPDEC in the lead developer role. The facility will include maximum security and remand facilities for about 500 male and female prisoners. In addition, the facility will include an administration and processing building, cell blocks, health care facility, dinning, kitchen and laundry facilities, education centre, chapel, agricultural area, and a recreational and workshop building and other support facilities for the rehabilitation of prisoners. The arrangements that we have concluded with NIPDEC also provide for in-depth training of Prison Officers over a five month period.

The project is scheduled to commence on 1st January, 1998, and the duration is estimated to be two (2) years. The projected employment generation capacity of the project is 400 nationals during the construction phase.

Mr. Speaker, every effort will be made to ensure that the recurrent costs of operating this facility are reduced as much as possible, by having the inmates produce much of what they eat, and undertake the supervised maintenance of the facility.

Mr Speaker, before I leave the subject of the financing and construction of the three projects, I wish to emphasize that while NIPDEC will be managing the construction of these projects, only Saint Lucian contractors will be engaged in the construction activities.

Refurbishment of Police Stations

Mr Speaker, Sir, the state of the Police Stations has been the subject of considerable commentary. A recent survey and assessment indicated that the physical conditions of five police stations are such that the extent of the repairs would be uneconomical. Their physical conditions restrict the level of expansion necessary to house the future operations of the police. In addition, four stations require major upgrading, and two require minor upgrading. It is estimated that a refurbishment and construction programme would cost EC$ 16 million. I propose to present Parliament with a comprehensive refurbishment and construction programme in April, 1998. Meanwhile, Government will make a modest start by tackling the refurbishing work in the two stations requiring minor upgrading, Gros Islet Sub-Station and Soufriere. To this end, a sum of EC$500,000.00 has been allocated in the Supplementary Estimates to undertake internal changes to their layout. These changes will also facilitate an overhaul of their services.
Investment in Informatics Sector

Mr Speaker, Government will intensify the efforts towards encouraging investment in the Informatics Sector. We intend to continue work with the Private Sector in providing the infrastructure necessary to facilitate the development of this sector. The future viability of this sector requires that:

Government provides accommodation dedicated to the informatics sub-sector.
The National Development Corporation intensify its promotion efforts.
Sir Arthur Lewis Community College gives more emphasis to Informatics training.
Incentives be provided to the Private Sector for further training.
Government secures a significant reduction in telecommunication rates for that sector.

Mr Speaker, Honourable Members, arrangements are being finalized between the Caribbean Development Bank and the National Development Corporation to construct an Informatics Park on the Industrial Estate in Vieux Fort, and to renovate one 20,000 sq. ft building at its Union Industrial Estate. Funds to the amount of US$3.3 million has been approved for the construction of the buildings at the Informatics Park. The building to be renovated will be funded from other sources.
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SUMMARY

Mr Speaker, when Ministers of Finance present budgetary statements,they speak not only for the present but the future. This Supplementary Budget will, I am sure, fall for scrutiny by economic historians. When they do so, I would hope that they interpret this budget as a statement of fiscal stability, hope and confidence in the future. They will, I am sure, reflect on the departures in style, substance and focus.

The policies enunciated earlier will help to create a more conducive environment for private sector development and investment. The policies express the Government's wish to see more Saint Lucians engaging in entrepreneurial business activity and in particular, investing a fair proportion of their savings in the share capital of productive sector enterprises.

Mr Speaker, this Government is opening doors for our private sector. A new, sincere partnership is in the making. It is for the Private Sector to grasp the hand that has been extended.

Mr Speaker, the sounds of the Yuletide are upon us. Those who have found employment with the Short-Term Employment Programme will bring some cheer to their families. Others will not be so fortunate.

For many, their Christmas cheer will be the barrels which they receive from relatives abroad. The Government has decided to extend a helping hand by waiving duties and taxes on all barrels which arrive between today, 4th November, 1997 and January 31st, 1998. Recipients of the barrels will, however, be required to meet the modest service charge.

Mr Speaker, in these proposals, I have attempted to lay the foundations to stabilize our economy and redefine our priorities.

I recall that many who supported the United Workers Party Administration advanced the view that this was a good election to lose. Mr Speaker, Honourable Members, I say that this was a good election to win. The problems which we have inherited offer a unique opportunity to strike out in a new direction. The historical mission of this Government is to rescue our economy from the deep abyss left behind by the United Workers Party.

Undoubtedly, it will be rough in the short-term. Equally, it will be challenging. Saint Lucians are known for their resilience, intellectual stamina, fortitude and creative talents. It is these qualities that this Government has tapped to fashion this budget. Better days will be here if we do the right things now.

Mr Speaker, it is with humility that I commend these strategic proposals to this Honourable House and to urge their adoption with the following resolution.

 

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