PHILIPSBURG--Income and expenses in the draft 2012 budget are "estimated conservatively, but realistically," Finance Minister Hiro Shigemoto told Parliament as he tabled the budget for debate Wednesday, almost two months into the year. The economy is showing signs of "picking up" based on increases in room occupancy and cruise passenger arrivals, he said.

The budget has to finish its rounds in the Central Committee before it is forwarded to a plenary session of Parliament for approval.

While Shigemoto did not specially outline government's policies in his presentation, he highlighted that personnel expenses, salaries, wages, benefits and social charges needed to be controlled as soon as possible to be able to keep the budget in balance in the future.

The total operating expenses for 2012 are budgeted at NAf. 432.5 million, an increase of NAf. 11.6 million or 2.8 per cent compared to 2011. As required by law, the total operating income and expenses are balanced; the budget has no deficit, no surplus.

Capital expenditures include study loans, the cost of completion of the new Government Building, and infrastructural projects, including the ring road. The total of capital expenditures of NAf. 65.6 million will be financed by government's available cash (NAf. 23.8 million), bonds to be issued (NAf. 37.3 million) and means available from depreciation of material fixed assets.

The pre-financed loans were refinanced during 2011 with a bond issue of 2.5 per cent. No bonds have been issued as yet to finance the capital expenditures in 2011. The actual debt position at this moment is "therefore lower than budget and the debt to GDP ratio in the range of about 23-25 per cent."

Shigemoto attributed the late presentation of the budget to the Central Committee to a "handicap-start" because the preparation had started late in 2011. The minister pointed to "balancing issues" as the reason for the late presentation.

After a full year of operating as a country, all ministries submitted budgets that far exceeded the available means due to experiencing what is necessary to run the country, he further explained.

Growth and tax collection

The Gross Domestic Product GDP is expected to grow by 0.2 per cent annually. The minister said that to cover the increase in expenses, extra measures will be needed to be able to balance the budget. Those measures will be focused mainly on compliance.

"At this moment there is insufficient data to project growth; however, there are signs that the economy is picking up [based on occupancy rates, cruise passengers]," he said.

Delving into the "meat of the budget," Shigemoto said the operating income for 2011 had included incidental grants while the 2012 budget includes no grants. The main increase in income concerns extra income from income taxes (NAf. 24 million). Measures to increase compliance by taxpayers are a goal of government this year.

The personnel expenses account for 41 per cent of the total operating expenses, followed by goods and services (27 per cent), subsidies and contributions (23 per cent). Operating expenses are expected to grow by two per cent annually as from 2012. A substantial part of the subsidies and contributions includes personnel expenses, Shigemoto said.

Income from wage tax and income tax as a percentage of GDP has been "declining" over the last 10 years from 10.2 per cent in 2002 to 8.3 per cent in 2009. Efforts are being made to bring back the level of wage and income taxes through actions to increase compliance, Shigemoto told Members of Parliament.

The actual income and wage taxes for 2010 and 2011 amount to NAf. 114 million and NAf. 122 million respectively.

Wage and income tax account for 32 per cent of total income, followed by turnover tax (28 per cent), profit tax (nine per cent), other taxes like gasoline excise tax, transfer tax (10 per cent) and other levies and retributions like bank licence fees, concession fees, casino and other business licence fees (21 per cent).

The increase in wage and income tax is due to actions taken by the tax authorities in the real estate sector and should lead to substantial increase in income tax. The increase in turnover tax is due to the fact that in 2011 only 11.3 months of turnover were subjected to a rate of five per cent.

The jump in wage and income tax is mainly due to extra income tax expected from non-resident property owners. Although the expected additional income includes retroactive assessments, a structural increase in wage and income taxes is expected due to actions taken to increase compliance. Government aims to collect NAf. 48 million from foreign condo owners.

Expenses

The increase in expenses of the Parliament and Councils compared to the 2011 budget is caused by an increase in "personnel occupancy" (NAf. 2.8 million) and increases in travel expenses (NAf. 0.9 million), advisory services (NAf. 1 million), courses and communication.

The increase for the Ministry of Finance compared to the 2011 budget is due to an increase in personnel expenses (NAf. 2.4 million) and in interest and depreciation expenses (NAf. 2.6 million).

The changes to Ministry of Tourism, Economic Affairs, Transport and Communication compared to the 2011 budget are due to an increase in personnel expenses of NAf. 2.2 million and a decrease of NAf. 5.7 million in USONA/SEI funded projects included in the 2011 budget.

Shigemoto said personnel expenses, excluding cost of medical care, had increased by some 15 per cent due to salary adjustments and extension of work force (5.5 per cent). Total personnel expenses, including personnel expenses for the subsidised foundations, including the cost of medical expenses of personnel, amount to about 55-60 per cent of total operating expenses.

"Any increase in personnel expenses has a serious material effect on the total budget. Personnel expenses, salaries, wages, benefits and social charges need to be controlled as soon as possible in order to be able to keep the budget in balance in the future," he said.

Figures per ministry

The Ministry of Education, Youth, Culture and Sports accounts for the lion's share of the budget. A total of NAf. 110.7 million is budgeted, up by NAf. 621,000 from last year.

The Ministry of Justice has a decrease in its budget. The total allotted is NAf. 67.4 million, NAf. 1.2 million less than in 2011.

The Ministry of Tourism, Economic Affairs, Transportation and Telecommunication also saw a decrease in its budget. The total budget is NAf. 30.3 million, down by NAf. 3.5 million.

A total of NAf. 15.4 million is budgeted for expenses for Parliament and the High Council of State. This is NAf. 9.5 million more than 2011.

Budgeted for the Ministry of General Affairs is NAf. 69.3 million, up by NAf. 1.8 million from last year.

The Ministry of Finance's budget is NAf. 43.1 million, increased by NAf. 3.3 million.

The Ministry of Health, Social Development and Labour has a budget of NAf. 61.5 million - increased by NAf. 2.8 million.

The Ministry of Public Housing, Spatial Development, Environment and Infrastructure has a budget of NAf. 34.4 million, an increase of NAf. 1.8 million.

Moving forward

Shigemoto warned that any changes to the draft budget during its handling in Parliament would mean that the draft budget would have to be re-submitted to the Committee for Financial Supervision CFT for advice. The CFT already has issued a preliminary cautiously positive advice. A formal advice will be given after Parliament has approved the budget.

"If these changes are budget-neutral, the process could possibly be shorter than if changes are made without considering how to cover the changes of increases in cost in the draft budget. This in turn would mean a longer period without an approved budget 2012."

The Finance Ministry has started the 2013 budget cycle. Each Ministry will receive a framework document soon indicating the 2013 budget room for each. The expected income level for 2013 will be calculated so the "pie" can be divided among the ministries.