The debate about financing the AOV pension raises a much broader question: How should Curaçao organize government revenues, income security for its population and the island’s ability to generate income in the future?
These issues are all connected. Yet we often discuss them separately. One day the debate is about increasing pensions, another day about introducing a new tax or making a new investment. The relationship between these issues deserves much more attention.
Tourism and other economic activities bring significant amounts of money into circulation in our economy. But that does not automatically mean the government collects sufficient revenue or that everyone earns enough to maintain a decent standard of living.
Part of that money leaves the island through imports and payments to foreign service providers. At the same time, there are concerns that some income and transactions remain outside the tax system. The extent of this problem needs to be properly investigated. But the direction of the discussion is clear: before introducing additional financial burdens, it is worth examining how effectively we register the flow of money through our economy and collect the taxes that are already due.
That could be a good place to start.
A simple and verifiable system that records business sales and payments, including cash transactions, could make tax collection less dependent on what businesses themselves declare.
Registration, however, does not mean that every bank transfer should be taxed. A loan, a payment to a supplier and a transfer between someone’s own accounts serve very different purposes. Taxing every movement of money could result in the same guilder being taxed several times, making business and investment more expensive.
The real question is how Curaçao can make tax collection more reliable while simplifying the system at the same time.
In this context, it is worth examining whether the tax burden should gradually shift from income toward consumption. Curaçao already has a sales tax, meaning that a VAT system could replace an existing system rather than simply adding another tax.
There is another potential advantage. Someone who does not fully declare their income would still contribute to government revenues when purchasing taxable goods and services from businesses that correctly remit the tax. Tourists would contribute in the same way.
The International Monetary Fund has previously supported VAT reform in Curaçao that would be fairer while keeping overall tax revenue broadly unchanged. If more effective collection produces additional revenue, part of that money could be used to reduce the tax burden on people with modest incomes. Whether that would actually leave households with greater purchasing power would, of course, also depend on what happens to consumer prices.
This leads to a broader idea: guaranteeing a minimum level of income.
People who do not have sufficient resources to maintain a decent standard of living could qualify for an income supplement. This could apply not only to pensioners but also to people who work and still earn too little.
Simply reducing income tax offers little benefit to someone who already pays almost no income tax. A targeted income supplement, however, can reach this group directly.
Such a system would have to consider household composition and the financial resources available to each household. It should also be designed so that earning more always leaves someone better off. If every additional guilder earned is immediately deducted in full from the income supplement, there is no financial benefit to progressing through work.
But better tax collection and basic income security are only part of the equation. Curaçao must also strengthen its capacity to generate income.
What does our Latin American and Caribbean region need that Curaçao can provide? Which companies can we attract, and which businesses can we develop ourselves? And what knowledge and skills will our people need to perform those jobs?
The recently announced fish-farming project at Bullenbaai makes this concept more concrete: production for export, combined with opportunities for employment and training.
The project still has to prove itself. Initiatives of this kind should be evaluated based on their export markets, local wages, contracts awarded to Curaçao businesses and the net foreign currency income they generate.
Investing abroad can also produce returns, but it carries risks and requires financial resources that must actually be available.
These different elements can be developed simultaneously. More effective tax collection can create fiscal space. A minimum income level can strengthen basic economic security. New economic activities can broaden Curaçao’s economic base.
Whether all of this is financially viable requires a separate calculation — something for a future article.
For now, one question deserves a serious public debate: How do we build a system in which the economy generates sufficient income, the government collects revenues reliably and people are able to live with dignity?
Orlando Meulens
Columnist