On Tuesday 8th May 2012, the Hon. Prime Minister presented further details of the Budget for the year 2012-13. One must agree that it was an informative presentation with varied and incisive policy positions on the economy.
As we say locally we can ‘ christen’ the budget as The Construction Budget, as the core policy is to use the construction sector as the avenue for economic growth. Before commentary is presented on the specifics, it is instructive to review some of the issues raised in the presentation. The Prime Minister presented four crucial matters facing the country:
1. Rising Debt levels
2. Recurrent expenditure outstripping revenue
3. Need to stimulate the economy
4. Job creation
There is indeed an interrelationship among the above four matters. A stagnant economy will result in reduced revenue to the Government. There will be need to borrow to stimulate the economy, increasing borrowing will result in increased debt. Also the stimulation of the economy should create jobs.
Yet the paradox is that increased debt reduces the ability to borrow at competitive rates, and there can be a jobless recovery of an economy. The success of the Budget proposals will hinge on the ability of the government to rollout the initiatives as quickly as possible and to ensure that the targeted activities in the construction sector do not become a drain on our foreign exchange.
The failure of the OBAMA Stimulus Package was the inability of the Federal Government to efficiently implement the various infrastructure programmes planned. One sees this as the greatest challenge that this Government faces in this fiscal year. Can the existing bureaucracy with the Public Service change gears to suit the policy intent of the Government.?
I have my doubts that this can be achieved and one would again strongly suggest that the new Government considers the establishment of special purpose companies to drive the policy of using construction as a stimulator of the economy.
RECOMMENDATION # 1
A special purpose company is set up to drive the policy of using construction as the stimulator of the economy. One would call it the St. Lucia National Infrastructure and Project Management Company. This company will operate on strict commercial terms to fast track the implementation of projects.
The Prime Minister provided some details on the Construction Stimulus Package as follows:
• Remove all duty and taxes on the critical materials in construction namely, sand, cement, lumber, steel , paints etc
• Remove Stamp Duty on mortgages
• Accelerate the provision of Serviced –lots
• Engage the Banking sector and Legal fraternity on measures to reduce the cost of construction. It was noted that the discussions with the Bank of St Lucia yielded results, with the Bank agreeing to reduce interest rates on loans to 5% for the first five years on new construction.
The lawyers appear to be still demanding their pound of flesh for their services.
In the presentation of the Priority of Fiscal Consolidation the Prime Minister made reference to increasing the cost of the Aliens Landholding Licence. I however believe this is a counter-productive measure to the stimulating of the economy through the construction sector. I wish to explain this further.
The economy of Barbados and the Bahamas grew to a large extent due to the construction of High end homes. In Barbados there was a surge of interest to own holiday homes, some costing over $ 10 million USD. The advantage of encouraging the construction of these types of homes is that it brings in new money into the economy and it creates jobs. One house costing $ 27.0 million XCD is equivalent to 180 low income home costing $ 150,000 XCD.!!
The Government of the Bahamas went even further and passed legislation under the International Persons Landholding Act, which removed the requirement for a licence for certain purchases namely single family homes. The High – End Homes can be a significant contributor to stimulating the economy and the Ministry of Tourism should see this as part of the marketing of St. Lucia – COME HERE TO LIVE.
RECOMMENDATION # 2
Amend the Alien Landholding Act to allow greater contribution of the construction of High end homes to the economy. The St. Lucia Tourism Board embrace a new marketing strategy to encourage visitors to own homes in St. Lucia.
I am of the firm view that Housing is the key to the growth of the economy even more so than infrastructural development. The construction of a house in a housing development mobilizes the following job market :
• Masons
• Plumbers
• Electricians
• Painters
• Tilers
• Air Conditioning Technician ( High end)
• Labourers
• Truckers
• Quarry Operators
• Equipment Operators ( Backhoes/ excavators/ Graders/ Paver operators etc).
The Minister of Housing therefore may play a critical role in moving the economy forward. If we get our housing sector right, the plans outlined in the Construction Stimulus Package will be successful.
Recommendation # 3
Emphasis should be placed on the Housing sector, with two separate programmes being implemented simultaneously. A “ FILL- IN “ programme where vacant lots in existing developments are targeted for house construction. Secondly, a vigorous housing programme with a maximum of 60% seeding of the developments.
In closing, I agree with the Prime Minister that we are all in this together and I would hope that my suggestions are at least considered.