Letter of Intent still not signed

The much talked about “Letter of Intent” to officially kick start Grenada’s Structural Adjustment Programme with the Washington-based International Monetary Fund (IMF) is still to be signed by the eleven month old Keith Mitchell-led New National Party (NNP) government.

That’s according to Terrence Forrester, a leading spokesman for Prime Minister Mitchell and the official Public Relations Officer (PRO) of the ruling party.

Forrester told host of the popular, “Sundays with George Grant” radio programme that the Prime Minister is not prepared to make any public pronouncements on the letter at this point in time.

A Grenada delegation including Permanent Secretary in the Ministry of Finance, Timothy Antoine has just returned home after visiting Washington to meet with IMF officials to discuss the content of a draft “Letter of Intent”.

Forrester said that Prime Minister Mitchell is of the view that he needs “the appropriate time” to discuss the contents of the response of the fund with his Cabinet of Ministers before making any public statement.

According to Forrester, Dr. Mitchell “anticipates that within a matter of two weeks, he would be in a position to make a public statement regarding the signed document which he anticipates will be signed by himself”.

“So in essence, he (the Prime Minister) does not wish or want to provide any updates just as yet until he has had the opportunity to review what they (the Antoine delegation) will be presenting to him, and this is indeed the proper way to go”, he added.

THE NEW TODAY has seen a copy of a draft letter of intent that was prepared by officials in the Ministry of Finance for perusal by the Cabinet of Ministers before it was sent up to Washington.

The letter made specific reference to a package of measures to be introduced in order to raise revenue for the cash-strapped administration that is saddled with a national debt of EC$2.4 billion and which it has not been servicing since taking office in February 2013.

 

These include:

 

*A reduction in the personal income tax threshold from the current EC$60,000 to EC$30,000, with a lower rate of 15 percent applying to those in the lower brackets.

Boosting income and withholding tax collection by extending the income tax base to interest (excluding government securities), and lottery and games of chance winnings.

An increase in property tax collections through a revaluation of assessed property values to reflect market valuations and an increase in the property tax rate on buildings and land to 0.5 percent in 2014, and to 1 percent in 2016.




Streamlining tax exemptions to ensure equitable burden-sharing through: (i) a 50 percent reduction in tax exemptions to at least Grenlec, the largest beneficiary of exemptions (the relevant legislation will be revised as needed); (ii) foregoing the accumulated but unused balances of exemptions that were granted under the Manufacturer’s Competitiveness Program (MCP) of 2010-12; (iii) foregoing the exemptions envisaged under the revised MCP for 2013-16; and (iv) reforming the tax incentive regime to ensure the integrity of the tax base going forward (detailed below).

The base of the VAT will be expanded by (i) applying VAT to exempt and zero-rated items other than basic staples and agricultural inputs; and (ii) applying the full 15 percent rate to construction inputs (from 2014) and utilities provided to St. George’s University (from 2016).

Broadening the base and yield of excises by: (i) introducing an excise on luxury goods and on vehicle parts, tires, batteries, and motor oil; (ii) introducing an annual tax on movable luxury property (boats, yachts, and luxury cars).

Other revenue-enhancing measures will include the introduction of: (i) a small business tax regime for firms with sales between 30,000 and the VAT threshold, charging a flat rate of 5 percent on gross sales; (ii) a 10 percent tax on financial activities; (iii) increased fees on motor vehicle, professional and gun licenses; and (iv) fees for new government guarantees on the debt of statutory bodies.

Increased efforts to collect taxes that are due will also be critical in supporting the fiscal consolidation.

Introducing a strict sanction regime for late payment of taxes due (we intend to revise the respective tax laws accordingly before end-March 2014);

The Government also intends to publish a name-and-shame list of the largest taxpayers that are in arrears to the Treasury before end-2013.

A reduction in central government’s nominal wage bill to 9 percent by 2016, from a projected 10.4 percent in 2013 (excluding retroactive payments). This will be achieved by: (i) at the minimum, a cap on the nominal wage bill during 2014-16 (including allowances) at May-December 2013 levels (this will bring the wage bill to a projected 9½ percent of GDP by 2016);

A further reduction in the wage bill through attrition, with only 3 out of 10 departing employees replaced, and through the streamlining in the public sector following the planned public service review.

the elimination of 497 vacancies (previously used to grant higher salaries to existing staff); and a 20 percent reduction in benefits and allowances from their 2013 levels.

Agreement with the public sector Trade Unions on wage increases for the 2013-16 period consistent with at least a cap in the nominal wage bill at May-December 2013 levels will be a prior action.

To facilitate the achievement of the wage targets, we will not award performance increments for 2013-16 period, while continuing the performance appraisal system, and will offset any percentage point increase in wages with a reduction of 80 civil service positions through the discontinuation of an equivalent number of contracts (the non-renewal of these positions between September-December 2013 will be a prior action).

A 20 percent reduction in spending on goods and services, focused especially on savings in the utilities bill, rental costs, and communication costs. Healthcare costs will also be streamlined by updating the schedule of user fees for healthcare services, and designing fees to exempt only targeted groups (poor, infectious diseases);

Increasing incentives for the collection and payment of user fees in advance (lowering the budget allocations to increase reliance on fees). Other spending on goods and services will be frozen at 2013 levels.

Other spending will also be streamlined, including untargeted transfers, investments of lower social return, and reforms of statutory bodies to reduce their drag on public finances

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