“AND IT CAME TO PASS!”

I was inundated by telephone calls and live comments from many persons over the weekend regarding the “mysterious blackout” of the broadcast of the Anguilla United Front public meeting last Thursday in South Hill opposite the residence of the Hon. Chief Minister. Such a “black out” also occurred (granted to a much lesser extent) at our first public meeting at the Landsome Bowl Cultural Center as well. There is a theory that one should not consider anything a coincidence --- but nevertheless many of us viewed the first “black out” as such. The “rumour mill” before our meeting on this second occasion predicted that it would be sabotaged on the airwaves --- so we are now left with little recourse but to take the matter seriously. It was indeed curious that just when the Leader of the Opposition, Hon. Evans McNiel Rogers was getting into full swing with his presentation --- and before the main speaker, Mr. Curtis Richardson could launch his powerful “fire and brimstone” preacher style attack on his opponents and the issues --- our broadcast was hijacked. Surprisingly too is the fact that within ten minutes of the close of the meeting all stations were again up to full strength. Strong evidence, however, has presented itself that narrows the range of suspects and suggests that our musings should not be dismissed as sheer paranoia.

It was also not surprising that the main topic of discussion at the meeting was the proposed Interim Stabilization Levy that has been widely referred to as the “Destabilization Levy” since being so dubbed by our Party Chairman, Mr. Fritz Smith. Following the publication of my column last week and similar comments at an earlier public meeting by the Hon. Othlyn Vanterpool --- the discussion of this topic on the various talk shows and other media has focused on putting in place a lower limit for the imposition of tax. These are issues that the Anguilla United Front takes credit for as well as the concerns we have raised about the hotel workers and the self-employed.

The hurried and poorly attended public consultations were not effective in drawing out important questions on the imposition of such a historic levy --- much more aptly described as an income tax. Indeed 14 attendees cannot by any stretch of the imagination be considered a representative group of the tax paying community on the island. By contrast, the discussion of the National Health Fund being proposed by the AUF government received long and widespread public consultation to ensure that all the issues related to its implementation were widely ventilated. It is my belief that Government needs to spend some more time exploring both its options for effective implementation as well as viable alternative revenue measures that could replace the proposed Levy. The Levy as presented is an income tax and should be treated as such.

The Bill before the House of Assembly for Interim Stabilization Levy Act (ISL) seems to grow in controversy as it is being looked at more “surgically” in the community by the various interest groups and pundits. The AUF Party has decided that it is impossible to support the Bill in its present form given the inequities and unfairness that exists within it. In fact, the more closely we look at the Bill, the more inclined we become to looking to other sources for revenue. It has further been expressed that this Government has leapt on to the proverbial “third rail” in pursuing this form of direct taxation. And the fact that during the election campaign the Government made loud promises about not imposing new tax measures has exacerbated the belief among many tax payers that they were deceived as well as the perception among others that this situation is a factor of Government’s incompetence.

I have been making the point that the Chief Minister and his colleagues spent too much time being confrontational rather than being willing to negotiate in an atmosphere of mutual respect and cooperation. Several letters from the Governor and the Foreign and Commonwealth Office (FCO) pleaded for such an approach to be adopted. It was only at the eleventh hour when there was certain threat of collapse that there was a mad rush to accommodate. It would be most instructive to hear how the British Government itself dealt with its own situation of having a budgetary deficit.

The opening sentences of the Executive Summary of the UK 2010 Budget Report states as follows: “This budget sets out a five year plan to rebuild the British economy based on the Government’s values of responsibility, freedom and fairness. It shows how the Government will carry out Britain’s unavoidable deficit reduction plan in a way that strengthens and unites the country. This budget sets out the action the Government will take in three areas to rebalance the economy and provide the conditions for sustainable growth: a) deficit reduction; b) enterprise; and c) fairness.”

Firstly, in terms of deficit reduction the British Government proposed a rolling five-year plan to reduce the deficit as a necessary condition for sustained economic growth. You will recall that I have been saying that if the Government had been more cooperative on the political level they could have made strong arguments for a five-year rather than a three-year plan. Obviously, if Anguilla’s hope for recovery depends on a turnaround in the global financial situation should we not require as much time as the United Kingdom (UK) --- or more, to adjust our recurrent balance?

The second plank of the UK rebalancing program is enterprise. It speaks about the need to create the conditions for enterprise and sustainable growth. It also acknowledges that for “growth to be sustainable, it needs to be based on expansion in the private sector, not the public sector, and business across all regions and industries needs the right conditions to be able grow.” It then goes into a series of plans to promote business recognizing the importance of targeted incentives to encourage investment. This is the approach that our Government and in particular the Chief Minister fail to understand as a part of the strategy to revitalize the economy. Our recovery effort cannot only be public sector oriented. We must provide incentives to the private sector to enhance the climate for investment as well as maintain a partnership rather than an adversarial relationship with them. This is also a key strategy for the cyclical planning to restore fiscal balance.

The final plank in the strategy is fairness. The UK Government commits to “ensure that every part of the society makes a contribution to deficit reduction while supporting the most vulnerable.” I made the point last week about fairness and equity in the form of taxation. This is a very important factor in the successful implementation of any tax. Again in its hurry our Government has not been able to work through this very significant issue in the process. It is important that tax measures ensure that richest among us contribute the most to deficit rebalancing. As “the Levy” in particular was presented the lower middle-income workers are contributing a higher percentage of their earnings to the Government. This situation can never be considered fair or equitable.

It was in pursuit of this important fairness prerequisite that the AUF quickly put forward the proposal of a lower limit. We suggested that the lower limit should be below EC$2,000. We also suggested a graduated levy beginning from a 3% t 6% overall rate with perhaps a much lower limit and an even higher upper income limit. Immediately, the talk shows were swamped with persons trying to gain some political mileage out of either calling for a higher lower limit or a higher upper limit or both. In both cases no one presented a rationale for any limit or threshold they advanced.

As strong believers in statistical data in decision-making my AUF colleagues and I referred to the Country Poverty Assessment data to establish certain criteria for rationalizing the various limits or thresholds. Some key findings of the Poverty Assessment Report show a fall in poverty from 23% in 2002 to 5.8 % in 2009. Based on the figures the Poverty Line (PL) is estimated at EC$16,348 per person per annum or EC$1,362 per person per month. Extreme poverty, as measured by the indigence rate, also declined from 2% in 2002 to 0% in 2009. The Indigence Line is estimated at EC$2,602 per adult per annum or EC$217 per adult per month. I cannot help but comment here on the significant reduction in poverty in Anguilla during the period of prosperity under the AUF administration as well as the total absence of persons below the indigence level. This is factual testimony to the superlative efforts of the AUF to create a vibrant economy. While there is now considerable slippage in these levels based on the lack of success by the AUM to fulfill its promise of turning things around --- we must still rely on these slightly dated statistics for a proper rationalization of the lower limit.

But there is yet another useful statistic, namely, the Vulnerability Line (VL)! 17.7% of the population is below the Vulnerability Line and above the Poverty line. The Vulnerability line is EC$20,484 per person per annum or EC$1,707 per month. By adding the VL of 17.7% and the PL of 5.8% together we arrive at a percentage of 23.5% of the population being below the Vulnerability line. Were we then to use the Vulnerability line of EC$1,707 per month as the lower limit for the tax we could conceivably be exempting 25% of our population from the Levy. If we used the Poverty Line of EC$1,362 we would be exempting almost 6%. Choosing any one of these criteria to determine the lower limit of the levy would avoid an arbitrary choice of such a threshold. But what then would we use to determine the upper limit? Herein lies a further issue of fairness to be considered even before we considered the option of a graduated tax. One significant aspect of the graduated tax is to ensure that everyone in the society, excluding the indigent makes a contribution to the deficit reduction, however, small.

Nothing in the foregoing makes the case for an interim levy as being the best solution to the issue at hand --- deficit reduction. While I have not seen any estimate of the net yield of the levy I may be able to arrive at a reasonable estimate of the gross yield using the recent average total annual contributions to the Social Security Fund of approximately EC$25 million. The Levy being 60% of the Social Security Contribution rate could also yield around 60% of the total annual contributions that is around EC$15 million. But a number of questions arise:

• What will be the cost of administering the fund?

• How can we ensure fairness in the assessment process for the self-employed?

• How can we ensure equity through the compliance system between employees and the self-employed?

• What will be the life cycle of the interim levy?

• Will the service charge be taxed? And if so will it be at 3 or 6%?

It is because I am fully aware of the fact that the Government does not need the support of the Opposition to pass the Interim Stabilization Levy Act that my AUF colleagues and I have taken the time to point out these concerns. We will not support the Levy in its present form and have some real concerns as we continue to do our research whether it is the best option possible. Is it possible to raise the estimated EC$15 million dollars in gross yield from any other source?

In a brainstorming exercise three suggestions have been strongly advanced:

1. Why not simply increase the customs duty all around by 50% for a limited period of time renewable every three or six months as required by the House of Assembly to keep the Government honest?

2. Why not establish a sales tax or value added tax (VAT) at the retail level in the short term with critical exemptions that would allow for basic food and sanitary items for infants, the indigent and the aged?

3. Why not request an extension in the rebalancing period from three to five years and thereby reduce the level of tax measures required annually?

There are also a number of much farther-reaching concerns that have been triggered by this Bill. For example: i) At what point does taxing the self-employed slip into corporate income tax? ii) At what point may business transactions be audited through the bank in order to assess the self-employed? iii) What legal impediments will surface in the context of the various MOU’s; MOA’s and “IOU’s” out there? iv) According to one of my readers: “Will the term “interim” take on the usual government meaning “until we raise the percentage again”? v) Has the impact on the fledgling Financial Services Sector been adequately assessed?

It is obvious that this debate cannot be concluded by All Fool’s Day. But it appears that having wasted so much time the Government may have fewer choices. Public consultations need to include at least the three alternatives from the “brainstorming exercise” mentioned above. The importance of such an exercise is to reduce the risk of ordinary Anguillians being criminalized by the “IRS style penalties” that have been included in the Bill. In this context, persons like taxi drivers, fishermen, farmers, beauticians, barbers, street vendors, and so on who do not have formal accounting arrangements are especially vulnerable. Unlike Social Security and the proposed National Health Fund the calculable benefit from the “Levy” is not clear or easily explained to the majority of the tax paying community.

It seems that AUF leadership is being vindicated on a daily basis for what it has been saying about the lies, half-truths and innuendoes which this Government employed during the campaign to win the election and since coming to office to cover up their incompetence. Unfortunately many of their supporters feel deceived by the emphatic claims that were made in particular about “no taxes” and “plenty work”! Twelve months later after fighting everybody else they are now fighting among themselves and they still cannot deliver what they promised if elected.

A friend of mind in a mock biblical expose' recited this satirical gem to me: “And Hubert took the Anguillian people to the top of Mount Rhetoric and said to them: All those AUF taxes will I remove from you if you dip your finger and vote for my party. But twelve months later the people’s taxes were increased many fold. And Hubert standing afar off cried out in a loud voice: “It isn’t me! --- It is those AUF and British devils! I will cast them out!” And it came to pass that there was weeping and gnashing of teeth even among those who believed in him!”

Victor F. Banks
Sachasses Estate
March 22, 2011