CFT Chairman Raymond Gradus. Photo courtesy CFT.
~ CFT Chairman Gradus interviewed ~
By Suzanne Koelega
THE HAGUE–As the main financial advisor of the Kingdom Council of Ministers, the Committee for Financial Supervision of Curaçao and St. Maarten CFT plays an important role behind the scenes in the granting of liquidity support.
In light of the recent agreement between St. Maarten and the Netherlands, The Daily Herald spoke with CFT Chairman Raymond Gradus. His main message: get going on implementing the reforms, but do not make it too complicated and focus on the things that are realistic and urgent, such as reducing healthcare cost and the cost of government; and improving tax collection.
The CFT has always pushed for reforms. That is nothing new.
“We are not the only one to do so. A recent, not yet published report of the International Monetary Fund (IMF) says that not enough reforms have taken place on the islands, and that these reforms must take place now, also to make the countries more resilient. Reforms are a crucial part in this process. We need to be honest: not enough has been done in this area in the past years. The COHO [Caribbean Body for Reform and Development – Ed.] provides an opportunity to work on this.”
What is the difference between the CFT and the COHO? Will you keep advising on the budgets?
“Yes, because we have a legal task where it concerns the budget. St. Maarten’s 2021 budget is now at the CFT. Recently, we have advised on that budget. This advice will, as usual, be made publicly available. We also look at the execution reports and the annual reports. Our supervisory tasks will remain. The structural reforms will be carried out by the government and the COHO. We will play a side role in this as far as the budget is concerned. Much needs to be done in the fiscal area. We have been saying for years that not enough taxes are levied. The tax quota, the total of all taxes collected set against the gross domestic product (GDP), is too low. This needs to be tackled. Tax compliance needs to increase. The tax system needs to be looked at as well. The country package speaks of a shift from direct to indirect taxes. I partly agree, but I do question whether St. Maarten should have a general sales tax ABB. The IMF is highly sceptical about that. They say it is too complicated. The fact that there is a Dutch and French side plays a role in this. An added value tax BTW is also mentioned. Some St. Maarten politicians are saying that in the future there should only be indirect taxes. I think that is undesirable. I think that more taxes should be levied in St. Maarten, and not less. The tax burden is low in St. Maarten, while the expenditure level is rather high. The Dutch government is now providing liquidity support. However, that is not forever. We are calling for an increase in taxes in St. Maarten and a reduction of expenditures.”
For years, the CFT has advocated the need for solid financial management. You are very critical about the level of financial management of the St. Maarten government. How does the CFT feel about the fact that this is part of the country package?
“This is one of the aspects that touches both the work of the COHO and the CFT. A lot needs to be done in this area. The last annual report that was approved by the Governor is from 2014. That is unacceptable. Efforts have been made to clear the backlog of annual reports in all countries. Aruba and Curaçao have worked hard to get up to date with this backlog. That only partially applies to St. Maarten, which now has a 2015 annual report approved by Parliament (unfortunately not yet approved by the governor). But 2016, 2017, 2018 and 2019 annual reports still need to be done. St. Maarten has the biggest delay in clearing the backlog. Things are happening, but it is still not enough.”
The CFT has always said: get assistance to get the finances in order. Has that finally been arranged?
“There will be assistance as part of the reforms and the COHO. Financial management is something that needs to be in the genes. If you want to do it right, by now, you should already start with the 2020 annual report. I can imagine that there will be assistance for legislation, for the fiscal reforms. Do not make it too complicated, otherwise the compliance will remain low. They should take a good look at what the IMF says about that. Property tax is an efficient tax which is easy to levy, much more so than taxes on capital. The country package mentions a lot of assessments, plans of approach. In my opinion, the time of drafting plans is long gone. The time has come to really get things done. There is too much focus on assessments and studies in the country package, instead of what will really happen now and which changes can we really implement in the coming period. I would like to see more focus on things that will happen. Making the labour market more flexible [and] introducing the concept of reduction of working hours are important issues that need to be carried out, also for employers and economic development. Try to keep the analysis period on this issue as short as possible.”
The COHO and the reforms will cover a period of six years. You are saying things need to happen fast. Is six years not too long?
“Some things take time. Reforming the public sector, fixing all legislation, reforms in the healthcare sector [and] introducing basic health insurance require a longer period. Some things can be arranged more quickly. Not all civil servants and elected officials pay the 10 per cent own contribution in healthcare cost. That is not deducted from their salaries. The CFT has sought attention for this matter numerous times, but the St. Maarten government has not yet fixed this. I do not see why from a point of fairness some civil servants and politicians should not pay healthcare premiums. The CFT has also advised several times to increase the wage limit for healthcare cost from NAf. 60,000 to NAf. 120,000. This would generate more premium income and those with a higher income would carry more of the burden. In other words, a number of cost-saving measures in the area of healthcare cost need to be implemented in the short term. It is understandable that time is needed to implement integral legislation, but I think it would be good to get things going in a number of concrete areas in the coming year.”
A fairer, affordable health care system: that is your point.
“Correct. I understand the aspirations for a new healthcare system and that time is needed to prepare that, but there are possibilities to cut cost that can be implemented now – short-term cuts coupled with an increase of the wage limit where the broader shoulders carry the brunt of the weight. We do not need six years to do that.”
Reforms in the healthcare system are direly needed, because otherwise the healthcare system will simply become unaffordable.
“That is right. St. Maarten’s population is ageing. An unaffordable healthcare system and also pension system will become an even bigger issue than it is now – all the more reason to tackle this with priority.”
The pensionable age has finally been raised from 62 to 65 under heavy pressure from the CFT and the Kingdom government. One would assume that this was needed to arrive at a sustainable pension system.
“Until recently, we could say that St. Maarten was the only country in the Kingdom that had a pensionable age of 62. In the meantime, State Secretary [of Home Affairs and Kingdom Relations] Raymond Knops made raising the pensionable age to 65 part of the conditions for liquidity support. St. Maarten has complied with this. Considering the ageing and affordability of the system, the pensionable age should be further increased to 66 or 67. This is in the interest of the St. Maarten residents. Sometimes it seems that the CFT is too strict, but fact is that facilities such as the healthcare system and pension facilities need to be preserved for future generations. The same discussion that we had in the Netherlands about keeping the healthcare and pension system affordable for the next generations will have to take place in St. Maarten. That will surely result in a higher pensionable age above 65 and cost-cutting measures in healthcare, collecting more premiums. It is important to have this discussion and to take concrete steps as part of the country package.”
St. Maarten is going through rough economic times. Aside from the financial aspect, are you also worried about things like unemployment and poverty?
“Naturally. We are as concerned as the CFT, and even though it is not our core business, it certainly has our attention. The CFT has said that liquidity support is necessary and the Dutch government, in any event until April, provides funds for food aid. Through the wage subsidy, the St. Maarten government has been able to support businesses so people could keep their jobs. The IMF expects the economy to somewhat recover this and next year. The IMF suggests liquidity support for a longer period, up to 2025-2026. I do not think that is a good idea. It is important to return to a balanced budget as soon as possible, within five years. By swiftly implementing the reforms and to improve tax collection, we think that St. Maarten will be able to hold up its own pants earlier than that. Raising tax collection to a higher level is key to that.”
Is the CFT not too strict on a country that is in such a big crisis and so greatly depends on tourism?
“I do not think so. We are saying that liquidity support is necessary at this time. St. Maarten can currently not do without. The question is how to get a less cyclical economy. Economic reforms are unavoidable.”
The CFT is a strict financial supervisor. Are you doing this in the interest of the people or of the Dutch government?
“This is really in the interest of the people. The wage costs of St. Maarten’s public sector in percentage GDP are above average in the Caribbean. That means that this money cannot be spent on education, investments [or] economic development, and that hurts your population. Different choices need to be made. And, if they occasionally want to use the CFT advice to achieve this, that is fine with me. As long as it gets done.”
Source: The Daily Herald https://www.thedailyherald.sx/islands/move-along-with-reforms-but-do-not-make-it-too-complex