The 2012 Budget will destabilize State finances and will most likely lead to increases in indirect taxes to offset the huge reductions in personal and corporate tax rates.
Corporate tax rates have been slashed from 28% to 20% while middle and high income workers should see big increases in their take home pay as tax rates plunge from 31%, to as low as 7% for those in the lower pay bracket.
This is likely to raise smiles all around but it should be realized that the move will have serious implications on Government revenue. As such, there will be a price to pay for the $53m giveaway to the people.
Already, the 15% Hotel Turnover Tax has been extended to include restaurants, cinema houses, rental cars and other tourist related activities. However, local residents will also be affected as major users of these services. A 2% a month levy has been imposed on outstanding balances on credit cards, increased tax on luxury cars, higher price for imported canned fish.
Other details on increased indirect taxes will only be revealed once the Budget supplementary is made available – it is still not out, according to informed sources.
The tax rebates may have been prompted by a need to stimulate consumer spending in the current depressed business environment but will most certainly fuel inflation.
The announcement on the FNPF Decree and pension cuts is outrageous. It was unilaterally imposed without any consideration given to other options that were available. It is certainly most irresponsible for the Board of the FNPF to force members to pay the price for its own highly questionable and imprudent policies and decisions which have led to massive losses on the investment front, running into hundreds of millions of dollars.
Furthermore, putting out a decree when a case is pending in the Courts, shows disrespect to the rule of law and the Judiciary.
The pay rise to the civil service has long been overdue and is welcomed. However, one questions the discriminatory policy of giving a 9% increase to the Police Force when others receive only 3%. Considering that civil servants have not been given a pay rise in five years, the increase could have been higher.
Likewise, the increased allocations to the Health and Education Ministries are welcomed.
Budget 2012 makes no reference to the State’s ballooning debt levels. One must also question the total lack of accountability in government’s handling of public funds. Government accounts and financial statements are no longer available for public scrutiny nor are the Auditor General’s reports made public. In his 2012 Budget address, the interim Prime Minister and Minister of Finance refers to a need for accountability but is ironically unaware of a noticeable lack of accountability and transparency in his government’s management of public funds.
More on Budget 2012 as details are made available.