Annual Economic and Financial Review -December 2018

2018 Annual Economic and Financial Review ST VINCENT AND THE GRENADINES

property ($8.8m) and the issuance of aliens- landholding licenses ($5.1m) contributed to the marked contraction of $13.3m in the inflows from taxes on property. Collections from taxes on income and profits, which accounted for approximately a quarter of current revenue, fell by $3.3m partly due to lower inflows from personal income and corporate taxes, driven by fiscal incentives announced in the 2018 budget. 14 Despite a marked increase in import duty, fewer imports of used vehicles resulted in a sharp falloff in the vehicle surtax and contributed to the $1.5m decline in receipts from taxes on international trade. Current expenditure rose by 1.7 per cent ($9.9m) to $573.5m (26.1 per cent of GDP), reflecting higher outlays in three of the major expenditure categories. Compensation of employees, which comprised approximately half of current expenditure, advanced by 2.5 per cent ($7.2m), due mainly to the recruitment of police officers, the regularisation of teachers and annual increments granted to public workers. Spending on transfers and other social benefits, the second largest expenditure

component, grew by 4.9 per cent ($6.8m) due to investments in tourism marketing, negotiations with airlines and the operations of the Argyle International Airport. A 0.3 per cent ($0.2m) uptick in interest payments was recorded for the year, attributable to an increase of 1.3 per cent in domestic obligations, and was partly mitigated by a 0.3 per cent contraction in external obligations. Offsetting those expansions, was a notable decline of 5.7 per cent ($4.2m) in expenditure on goods and services and a 0.4 per cent ($0.1m) fall in the sundry expenditure category (Other expenses). The lower outlay in goods and services was related to government’s efforts at reducing operating expenses and maintenance services. Investment in the government’s capital programme contracted by 29.6 per cent ($20.3m) to $68.4m, the fourth consecutive year of contraction. The consecutive declines were consistent with the low rates of implementation related to large infrastructure projects, which has been due in part to lengthy procurement and payment processes by some donor agencies. The capital programme was partially funded by capital revenue and grants

______________________________________________________________________________ 113 Eastern Caribbean Central Bank 14 Some of the incentives announced in the 2018 budget were 1) a reduction in the rate of tax paid on corporate income from 32.5 per cent to 30.0 per cent and; 2) a reduction in the marginal rate of personal income tax from 32.5 per cent to 30 per cent.