by Richard W Duncan, OBE
The arc of Grenada’s journey to fiscal maturity has been checkered and torturous — half-baked reforms, misdirected legislative changes, structural adjustment programmes; all in search of a judicious mix of direct and indirect taxes that is fair, equitable and sustainable across economic cycles while allowing the state to design and deliver projects and programmes for the well-being, welfare and advancement of its citizens.
This journey has been too long and too painful.
“Fiscal blasphemy” is herein defined as showing deep disrespect, contempt, or insult toward prudence in public finance management. In Grenada’s case, such prudence has been forged in earnest since 1986, from the hard knocks of industrial strife, chronic fiscal deficits, Structural Adjustment Programmes (IMF-imposed, IMF-supported and Home-grown).
As polling day 2026 approaches, a blasphemous, vote-catching, ill-conceived promise is presented to recalibrate the income tax regime.
As presented, without substitute revenue measures and/or expenditure cuts, this gambit is mathematically compromised at best and totally unworkable at worst unless there is an insidious intent to repeal the Fiscal Resilience Act and scrap the fiscal rules.
Attention is drawn to page 3 of Walking the Straight and Narrow — Issues and Perspectives in Grenada’s Public Administration (1996) in which the author recounts a meeting on Friday, 30 June 1995 (31 years ago), with the senior staff of the Ministry of Finance and Prime Minister Dr the Hon. Keith Mitchell. The account is reproduced below to give historical context to what’s on offer today.
“Look at this problem with the teachers’ salary this month. Does anyone check back these calculations?” he wondered aloud. Murry offered his preliminary findings. Not satisfied, the prime minister replied, “That is one reason why we have to abolish income tax.” At the meeting he also declared that he was not asking the Ministry of Finance for any advice on the abolition of income tax. That was something that should have been analysed before coming to the decision. For me, that was the first hint that the New National Party did not analyse the implications of abolishing income tax. The Party had a philosophical position on the issue, made an election commitment, but did not look at the methodology, timing and sequencing of the abolition. “The Ministry has to implement policy,” the prime minister declared.
Immediately prior to that action, Minister for Finance Hon. George I Brizan’s internationally acclaimed Home-Grown Structural Adjustment Programme (HG-SAP) had produced its deliverables of restoration of Grenada’s creditworthiness, rebuilding economic confidence and securing commitments of international donor funding for the country’s Public Sector Investment Programme (PSIP).
However, on the desecrated altar of a philosophically inspired, vote-catching, but ill-conceived and misdirected public finance policy of “no income tax”, Grenada’s public finances changed course. The gains of the HG-SAP were squandered through wanton disregard for the rules and regulations of the public service. Two simple examples of the behaviour that brought these problems to bear: borrowing to finance repeated budget deficits and issuing of guarantees for dubious investors (local and foreign), which, when crystallised, added to the public debt. As a matter of fact, the authorities themselves were so ashamed of how rapidly and recklessly they had racked up the public sector debt that they began to hide the figures and sheepishly spoke only about the Debt-to-GDP ratio rather than the actual dollar value (size) of the debt stock. They disingenuously argued that the size of the debt is not important, that it’s the country’s ability to pay that matters. At the same time, the definitions of “debt”, “public sector debt”, “central government debt” and “national debt” kept changing as analysts and journalists tried to get a handle on the true state of affairs!
Prior to 2022 (barring Covid-19 pandemic) and up to now, the Grenadian economy has been experiencing an excellent phase of growth and development based on all metrics. See the IMF Article IV Consultation Reports, Reports of the Eastern Caribbean Central Bank (ECCB) and the Caribbean Development Bank (CDB). They all tell a positive story, which is cemented by the Fiscal Resilience Oversight Committee (FROC) reports. My takeaway is that fiscal sustainability, financial stability and industrial peace are all well-aligned. Unemployment is low; tourism numbers are up; construction (public and private) is booming; cost-of-living cushioning measures are balanced and effective; loan delinquency and nonperforming loans at banks and credit unions are very low; and liquidity in the financial system is high. All of which augur well for investor and consumer confidence.
The conditions alluded to above rest on the foundations laid by the previous administration and buttressed by the current one, which acknowledges that government is a continuum. Grenada’s fiscal maturity and sustainability stand, inter alia, on 3 major sources of tax revenue — taxes on income, taxes on imports and Value-added Tax. These are deemed to be well-calibrated and serving the public finance programming quite well.
Incremental tweaks over time with appropriate compensating measures are no doubt merited as circumstances permit after careful and rigorous analysis and deliberations.
Compliance with the provisions of the Public Finance Management Act No. 17 of 2015, Public Debt Management Act No. 28 of 2015, Public Procurement and Disposal of Public Property Act, No. 39 of 2014, and the Fiscal Responsibility Act, No. 29 of 2015 in the effective management of the public finances is critical.
Some highly respected analysts put the price tag of the current blasphemous, vote-catching, ill-conceived gambit as being high enough (upwards of $90 million annually) to derail the fiscal rules under the Fiscal Resilience Act (FRA), which must be restored in 2027, thus potentially plunging the public finances into disarray yet again.
Experience teaches wisdom, and former Prime Minister Hon. Dr Keith Mitchell must be justly credited for several of the most consequential advances made on our journey to fiscal maturity and sustainability. As such, it is fair counsel: “Let not another period of political desperation lead us to the follies of yesteryear.”
What is most needed to bolster the income tax regime is ongoing digitisation, improved client experience, further staff upgrades, both qualitative and quantitative and better pay, all geared towards significantly enhanced taxpayer compliance, administrative efficiency and effective enforcement.
Richard W Duncan, OBE, is a retired banker, former Accountant General and former Deputy Director of Budget and Fiscal Policy in the Ministry of Finance; and currently serves as an advisor in the Ministry of Finance.
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