St Lucia's VAT And Excise Share Of The Economy

I may not have the fabled memory of an elephant, but rest assured, it is better than that of a goldfish. Thus, when I see Allen Chastanet, Leader of the Opposition (LOO), engaging in convenient historical revisionism of the recent past, 2016-2021, not only does my antenna get raised, it recoils, compelling me to respond and refresh fading memories.

The LOO, who infamously said,“Truth is what you believe”, evidence be damned, is trying to sell the nation on his SOS-7, hoping that our power of recall is that of a“43 percenter”, sufficiently limited that we would forget or ignore his record and buy his repackaged/rebranded failed policies.

In a recent televised interview with Lissa Joseph, the LOO tried to convey the impression that his decision to reduce VAT led to economic growth and improved the economic well-being of citizens.

Let's examine the evidence/record to see what it says. Given the medium, I will avoid going into too much detail, but there are some important things to note.

First, VAT represents the biggest share of government revenue; second, there are two government agencies responsible for VAT collection: Customs and the Inland Revenue Department (IRD). I will not present figures for FY2020/21, given the distortion created by COVID, and instead examine the period 2015-2019, capturing pre- and post-VAT rate reduction. These figures are from the government's annual statement of revenue and expenditure.

• In FY2016, prior to the VAT reduction, the government anticipated collecting $352 million from VAT and $34 million from excise tax on petroleum products.
• For FY2017, the corresponding figures were $302 million and $55 million.
• In FY2018, the figures were $317 million and $70 million.

What this illustrates is that to make up for the revenue shortfall from the VAT reduction, there was a need to increase the excise tax on fuel. Citizens did not get any tax relief; the government merely collected the tax at a different source, which was less effective and efficient.

This decision neither spurred nor stimulated economic growth, as in 2016 the economy had grown by a decent 3.4 percent and by FY2019 had contracted by 0.9 percent; well before the precipitous plunge of 24 percent in FY2020.

The LOO was and is acutely aware that his ballyhooed“5 to Stay Alive” did not deliver, so much so that whilst on the campaign trail in 2021, he recast his promise of“Ching-Ching in your pockets” as not money, but an“Empowerment Card”; more pablum.

There remain many structural problems within our economy and society which need to be addressed. However, SOS-7 within that context is not only expired medicine, it is putrid.

By Darrel Montrope

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