- The document analyzes and critiques Allen Chastanet's "Five-Point Plan" from the UWP manifesto. - It argues the plan to reduce and eliminate VAT is unrealistic and would bankrupt Saint Lucia within 5 years as VAT makes up 35% of government tax revenue. Removing it without replacement taxes would significantly reduce government income. - It also contends the true intent is to reduce VAT exemptions rather than the rate, which would increase prices for basic necessities and hurt the poor.

1. DEBUNKING ALLEN’S “FIVE-POINT PLAN”
THE MATH JUST DOESN’T ADD UP…
WAS THE UWP’S 10 POINT PLAN A MARKETING AFTERTHOUGHT?
Chastanet’s Five-to-Stay-Alive remains largely an unsolved mystery.
First, we have now come to know that 5-to-stay-alivewas almostan after-thought
which was hastily added into the UWP manifesto. It was clearly writtenhastily as
the postscript at the bottom of a page which originally probably had merely
photos (pg. 2), so much so that it could not even fit properly in the space.

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While it speaks to five points, the real punch and mystery lies in point one: the
immediate reduction and eventual elimination of VAT. The matter of the promised
amnesty of hospital bills, for instance, an initiative taken on by my Governmentin
2012, is found nowhere within the body of the 4-page section on Health.
Five-to-Stay-Aliveis first and foremost an election gimmick that hopes to deceive
the SaintLucian population. Five-to-Thriveis of thatsamevein. Infact, ALL 5 points
in the 5-to-Thrive do not even exist inthe UWP Manifesto, therefore suggesting
it was an afterthoughtaimedat seductionof the young peopletowards theUWP.
PROMISED REDUCTION & ELIMINATION OF VAT
Out of the 72 page manifesto, the mention of the reduction and elimination
removal of VAT receives 1 line:
“Reduce the Value-Added-Tax (VAT) and outline a plan for its ultimate
elimination;and replaceit with a restructured tax regime that will be less
burdensome but without compromising the revenue base.”
Now, what does this really mean?
The UWP would like you to believe that removing VAT is the solution to all of Saint
Lucia’s problems and in particular the cost of living. Yet still, Allen Chastanet has
admitted that: “VAT is the most effective tax worldwide.”
That is truly a gimmick and nothing more. VAT raised about $346 million, out of
Government’s 985 million in tax revenue last financial year (2015/16). In fact, VAT
represents 35% of all of Government’s tax revenue.
If we might speak hypothetically for a moment, if your boss took off 35% of your
salary tomorrow, would you be able to survive? Five-to-Stay-Alive contains three
tax measures that will cost the Government in excess of $365 million is lost
revenue. But clearly, the UWP manifesto says thatthere will be NO compromiseof
the revenue base.

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The way that Allen Chastanet expressed it on his election platform and at public
meetings, however, he drops off the important point: “without compromising the
tax revenue” disclaimer.
If implemented without any replacement tax, what it will do is send SAINT LUCIA
BANKRUPT in less than 5 years.
Our debt-to-GDP ratio which currently stands at 75% would jump to at least 125%
of GDP in under 5 years.
That’s way beyond whatis manageable. We will not be able to serviceour debts as
we would have to borrow moreto keep afloat; that is assuming you would still be
able to borrow. The Government would eventually start defaulting on debt
payments and would have a hard time paying anything else (salaries, purchase of
goods and services, etc).
The Government would eventually have to retrench workers.
The ECCB, of which the Saint Lucia is the largestmember, will be forced to devalue
the EC Dollar, probably by at least 10-15%. You would then need EC$3.10 to get
US$1.00.
The $150 more in your pocket that the UWP claims you would get for every
$1000.00wouldbecomemeaningless by 2020becauseof increased taxation which
will be imposed by the IMF and the fact that your dollar is worth less than before.
This is the sad reality of what WILL HAPPEN IF you remove VAT.
VAT is not bringing in that much more new revenue as the UWP may want you to
believe. VATis a replacement tax which taxes consumption. Remember that in the
pastthere weretaxes on goods and services:consumptiontax, environmentallevy,
telephone tax, hotel accommodation tax, cellular phone tax. In fact, sometimes
consumption tax was well over 30% on some goods. Those taxes before raised
about $200 million in pre-VAT 2011.

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A summary of this is shown on the next page:
Table 1 RevenueCollections for VAT& Taxeswhich it replaced (in millions of $EC dollars) (extracted from
Appendix 37, pg. 90, Economic & Social Review 2015).
Revenue 2005/6 2006/7 2007/8 2008/9 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
Cellular Tax 7.63 9.05 11.95 12.81 12.56 17.74 18.63 10.47 0.01 0.00 0.00
Consumption
Tax (Domestic)
8.32 8.05 9.85 6.38 6.35 5.67 6.11 4.22 0.11 0.01 0.02
Consumption
Tax (Imports)
104.67 111.54 112.24 136.28 140.17 113.70 111.93 48.30 0.64 0.10 0.27
Hotel
Accommodation
Tax
28.69 29.53 33.45 35.02 25.50 34.25 39.62 22.40 1.94 2.58 0.67
Environmental
Levy
17.45 21.56 18.03 15.97 14.35 16.18 16.19 8.17 0.17 0.01 0.00
Pre-VAT Taxes
TOTAL
166.76 179.73 185.52 206.46 198.93 187.54 192.48 93.56 2.87 2.70 0.96
VAT (Goods &
Services)
63.12 157.40 183.25 183.87
VAT (Int'l Trade
& Transactions)
75.30 141.49 151.14 162.50
Total VAT 138.42 298.89 334.39 346.37
Today, since the implementation of VAT, the difference between these taxes (at
the 2011/12 level) and VAT (2015/16) is about $153 million in revenue.
Nearly all of that has gone into paying for the 14.5% salary increasethat King gave
in 2007and theincreased debts and interestpaymentsleft by thelast Government.
THE UWP’S RUNAWAY EXPENDITURE CAUSED OUR FINANCIAL TIME BOMB
You see, the hard reality was that the UWP Government, of which Allen Chastanet
sat in as minister for Tourism, was spending more than the country could
reasonably afford. The Labour Government found a slew of consultants in nearly
everyministry,nearly100in total acrosstheGovernment.Thiswasunprecedented.

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Havea look atthe table below which showsa comparisonof spendingbetween the
parties, UWP between 2007-2011 and SLP between 2012-2015:
Table 2 Comparison of Government Spending Between 2 Regimes (in millions of EC dollars)
UWP Administration (07-11) SLP Administration (12-15)
Spending Head 2006/7 2011/12 2015/16 Diff % Change Avg
Annual
%
Change
Diff % Change Avg
Annual %
Change
Total Current
Revenue
655.98 835.96 984.79 179.98 27% 5.5% 148.83 18% 4.5%
Of which:
Tax Revenue
(Income)
620.31 764.59 933.73 144.28 23% 4.7% 169.14 22% 5.5%
Non-Tax Income
(Fines, Fees, Etc)
Total Current
Expenditure
554.91 776.63 910.95 221.72 40% 8.0% 134.32 17% 4.3%
Of which:
Wages & Salaries 255.65 349.52 381.68 93.87 37% 7.3% 32.16 9% 2.3%
Interest
Payments
78.72 105.82 162.29 27.1 34% 6.9% 56.47 53% 13.3%
Goods & Services 102.7 145.99 169.7 43.29 42% 8.4% 23.71 16% 4.1%
Current Transfers 117.84 175.3 197.29 57.46 49% 9.8% 21.99 13% 3.1%
Current Revenue
less Current
Expenditure
101.07 59.33 73.84 -41.74 -41% -8.3% 14.51 24% 6.1%
Total
Expenditure
845.9 1142.77 1177.02 296.87 35% 7.0% 34.25 3% 0.7%
To summarise, under the 5 years of the UWP Administration, the following
happened: overall spending went up by 35%, or on average by 7% per year.
Critically, current expenditure went up even faster by 40%, or by 8% per year on

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average. That is equivalent toan increase incurrent expenditure by $221 million
per annum!
The main pressures were seen across all spending areas:
1. Wages & salaries up by 37%, a whopping $93.9 million;
2. Current Transfers up by 49%, or by $57.5 million;
3. Interest Payments up by 34% or by $27.1 million; and
4. Goods & Services up by 42% or by $43.3 million.
In effect, the UWP left Government with an economic time bomb ticking away.
By 2012/13, theGovernmentwas noteven making enough money to meet current
expenditure. In 2012/13, the year VAT became effective, Government ran a
negative current balance of over -$52 million. Governmentwas borrowing to keep
the basic functions of Government running. The fiscal deficit, which the IMF and
World Bank advise to be no greater than -3% of GDP, stood at over -9% of GDP.
Debt was racing up.
LIMITED FINANCIAL OPTIONS & INTRODUCTION OF THE VAT
Your Labour Government hadnochoice but tocorrect these matters or elseSaint
Lucia faced certain financial and economic disaster. In those early years upon
taking office, economic activity remained dull thanks to the flight of investment
under the UWP and investors not having confidence in the Saint Lucian economy
due to the poor fiscal position. Growing out of the problem was not an option.
Government was faced with the choice of curtailing/reducing expenditure AND
increasing revenue. The two had to be done simultaneously because of the extent
of the problem left behind by the UWP.

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The extent to which the Governmentcould reduce expenditure was limited due to
the fact that much of the spending was fixed: mandatory debt interest payments
and public service salaries. Otherwise, we would have faced the fate which I
described, the dreaded IMF.
SAVING SAINT LUCIA: WALKING A FISCAL TIGHT ROPE
Incontrastto the 40%increasein spendingunder theUWP,currentspendingunder
Labour increased by 17%. In fact, total spending per annum only increasedby 7%
under Labour’s tenure, compared to the 35% increase under the UWP’s term.
Annual revenue increased by 18% or by 149 million between 2011-2015. This was
largely due to the introduction of the VAT and was just enough to eliminate the
negative current balance. Today, we are back to enjoying a positive current
balance.
Under the SLPbetween 2012-2015,recurrentspendingincreasedby17%,ofwhich:
1. Wages & salaries up by 9% or $32.2 million;
2. Current Transfers up by 13%, or by $21.99 million;
3. Interest Payments up by 53% or 56.47 million; and
4. Goods & Services up by 16% or 23.7 million.
ALLEN’S PLAN INVOLVES REMOVAL EXEMPTIONS
Today, however, we now understand that Allen Chastanet’s true intent is to
introduce changes to VAT that in fact will not to the benefit of the ordinary Saint
Lucian.
Allen himself, at a Town Hall Meeting in Gros Islet, admits that VAT is the best and
most effective tax system in the world.

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But, you see, his true intent lies in his very own words again. He said the following
at the UWP Economic forum this week:
“When VAThas zero exemptions, it also means that it allowsyou to reduce
on the tax rate….Themore exemptionsthat you put into VAT, what it then
causes is for the VAT rate to go up and the administration of the VAT
becomes even more difficult.”
Herein lies Allen’s true intentions. He may promise a reduction of VAT, but he
subtlyimplieshistruebut unstatedintentiontoreducethenumber of goods that
are VAT exempt. Currently, the number of items upon which people do not pay
VAT is over 70. Furthermore, ananalysis of the consumer price index trends will
suggest that prices of goods have been on a continuous upward trend for years,
including during the period 2006-2011. VAT has not been the principal cause of
price increases at the supermarket. Many other factors exist, including a strong
monopoly within the market.
THE TRINIDAD EXPERIENCE
We need only take the recent example of Trinidad & Tobago where the PNM
Government came in promising to reduce VAT from 15% to 12.5%.
They did so while drastically reducing on the number of items that were exempted
or zero-rated. What does this mean in a Saint Lucian context? Most of the zero-
ratedand exempteditems are groceries, electricity, water and pharmaceuticals.
Allen’s suggestion of broad difficulty with administration of the VAT is misleading.
The supermarketmonopoly is the company that would havethe most value added
items. Removing these items from the zero-rated list would mean the price of
basic food items increasing evenmore. This move does not benefit the poor. In
fact, it is anti-poor as persons with low incomes are known to spend
proportionally more on food.
Furthermore,Governmenttook a decision earlier on notto introduceVATon water
and electricity. This amount to foregone revenue in the region of $40 million.

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Would Allen Chastanet remove these exemptions as well in the name of his
reduction? Any 1% reduction in the VAT rate would result in the loss of
approximately $23 million. Would Allen reduce VAT by 2.5% or about $60 million
and simply offset this by reducing exemptions? He needs to come clean with his
true intentions and stop deceiving the people of Saint Lucia, particularly the youth.
5 TAXES TO REPLACE VAT
Now, if reduction of VAT was not enough, he’s also promised the removal of the
Value-Added-Tax within a year. Only until his programme on News Spin with
Timothy Poleon on Friday June 3rd
did Allen indicate his intention as to how to
eliminate the VAT. He claims that he need only worry about raising the difference
in revenue between the old pre-VATtaxes and the current VAT, which we showed
above (table 1, page 4) to be about $153 million. He then suggests that he has to
only add an 8% sales tax that would raise, claims about $75 million.
Well, hereis whereAllen is tryingto confuseus. First,it would mean he would have
to re-introduce the old taxes, itself a rather regressive step given the cost of
administering those taxes.
And then on top of that, raise a sales tax to meet the difference. So, you would
have to bring back the collection of old taxes (primarily consumption tax, hotel
accommodation tax, cell phonetax, environmentallevy),and then add on the sales
tax. But by his own assertion, a sales tax with a rate of 8% would generate “75 to
80 million dollars.” [taken from Allen Chastanet’sstatement on News Spin, June 3,
2016].
WHY ALLEN’S MATH DOESN’T ADD UP WITHOUT DRASTIC CIVIL SERVICE CUTS
So, if we should follow Allen’s logic, we should reintroduce the old taxes and then
add a sales tax. But by his own admission, 8% would raise $80 million. That would
mean to raise the required$153 million, he wouldneed at least a 15% sales tax!

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So you would replace 15% VAT to bring back 4 old taxes (2 of which by the way
can no longerwork due toWTO rules)ANDintroducea15%salestax? What’sthe
difference Allen, if not making things worse?
For his 8% sales tax to work, he must find an additional $80 million in savings! He
then goes on to suggestthat we can realise savings by reducing on the Ministry of
Foreign Affairs and consultants. The entire Ministry of External Affairs budget in
2016/17 is setat $26 million. The consultantargument as well is bogus. The entire
professionaland consulting fees head of the Governmentin this year’s estimates is
$8 million. And much of that is for doctors under the Ministry of Health ($1.5
million), and legal services under the Office of the Attorney General and Ministry
of Legal Affairs ($3.2 million).
So let’s look at Allen’s equation, assumingweclosed the Ministryof External Affairs
and took out all the consultancy services of the Government:
Removal of Current VAT Revenue minus$346 million
Reintroduce Old Tax Regime (C-Tax, HAT, EL, CT) plus $195 million
Introduce a new 8% sales tax plus $ 80 million
Close down the Ministry of External Affairs save $ 26 million
Remove all Professional & Consulting Services save $ 08 million
BALANCE (Funding Gap) minus $37 million
Allen’s math just doesn’t work out! Otherwise, he would need to find a way of
cuttingtheCivilServiceby $73millionor by 20%!Evenassuming thathe can close
the External Affairs Ministry and end all professional and consulting services
(which is impossible), he would still be left with an annual shortfall of recurrent
revenue of $37 million. That’s equivalent to a 10% reduction in salaries of all
public servants!

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TRUE INTENTIONS
Saint Lucia, be smart! Don’t let gimmicks and sweet sounding promises fool you.
Demand plans that are well though out. That are calculated. The truth is, Allen
Chastanet will never remove VAT. He probably will never reduce VAT either. If
anything, he may well remove the many exemptions to VAT that he’s already
complained about in smaller private meetings and his economic forum.
VAT is a tax that nearly every country around the world has. The UWP always
intended onimplementing VAT, they justneverhad the courageto do so,butwould
have been forced to at some point. They had already promised the IMF this.
VATwas always meantto beset at 15%. They also planned on having VAT on water
and electricity. VATon thoseutilities wouldresultin another $40million in revenue
but the Kenny Anthony Government decided to protect the consumer from this.
STAY ALIVE. STAY AWAY FROM DELIBERATELY MURKY PLANS.
STAY CLEAR FROM SOMETHING THAT JUST DOESN’T ADD UP.