Wage tax is not keeping pace with St. Maarten’s economic growth, CBCS says

GREAT BAY--St. Maarten’s economy is growing, tourism activity is expanding and government revenues have improved, but one important source of income for the country is not keeping pace: wage tax.

The Centrale Bank van Curaçao en St. Maarten (CBCS), in its September 2026 Economic Bulletin, says wage-tax revenue has grown more slowly than the wider economy in the years following the pandemic, raising questions about what is happening inside the labor market and whether government is capturing all of the revenue associated with the country’s economic expansion.

The Bank is careful not to attribute the trend to any single cause. It says weaker wage-tax performance could reflect developments in employment and wages, changes in the composition of the labor market, compliance issues or other factors affecting the wage-tax base. That is important because the CBCS is not saying outright that employers are failing to report workers or that wage-tax evasion is responsible for the gap. It is saying the trend is significant enough to require closer examination.

The concern stands out because other major tax streams have shown stronger performance. According to the CBCS, St. Maarten’s turnover-tax-to-GDP ratio recovered following the pandemic and has increased steadily since 2022, coinciding with efforts to modernize tax administration and strengthen compliance.

Wage tax followed a different path. The wage-tax-to-GDP ratio declined after 2020, indicating that wage-tax revenue grew more slowly than nominal GDP during the economic recovery. In simple terms, St. Maarten’s economy has become larger, but wage-tax collection has not increased at the same pace.

That raises an obvious policy question: why?

One possibility is that economic growth has been concentrated in sectors or types of activity that do not translate into wage-tax growth at the same rate. Another is that employment and wage increases have simply lagged behind the expansion in tourism, retail and other sectors.

But the CBCS also specifically identifies payroll reporting and undeclared employment as areas requiring closer attention.

The Bank recommends more targeted measures related to payroll reporting and undeclared employment, while also calling for stronger data systems that would allow government to better determine where revenue may be leaking.

That issue becomes even more relevant in a labor market such as St. Maarten’s, where tourism, construction, retail, restaurants, transportation and service industries employ large numbers of workers across businesses of very different sizes.

If economic activity is increasing but wage-tax collection is not rising proportionately, policymakers need to understand whether the difference is the result of legitimate changes in the labor market or whether income is being generated without being fully captured by the tax system.

The CBCS currently cannot provide a definitive answer.

The Bank says the country still lacks sufficiently detailed and timely data to calculate reliable tax compliance gaps. That means St. Maarten cannot yet accurately measure how much wage tax or turnover tax should theoretically be collected compared with how much government actually receives.

Improving tax-administration data and national-accounts information is therefore part of the solution.

The CBCS recommends better integration of data systems, digitalization, risk-based audits and data-matching tools to improve compliance and eventually allow government to regularly measure tax gaps.

For St. Maarten, the issue is not simply about collecting more taxes. It is also about ensuring that the existing tax system operates fairly.

If compliant businesses are properly declaring employees and paying wage taxes while others are not, the result would place law-abiding companies at a competitive disadvantage while reducing government revenue.

At the same time, any enforcement approach would have to distinguish between actual compliance problems and structural changes within the economy.

The September bulletin makes that caution clear. The CBCS says changes in tax revenue cannot automatically be interpreted as changes in tax compliance because revenues are also influenced by wages, employment, economic activity, payment timing and the structure of the underlying tax base. The Bank is therefore calling for analysis rather than assumptions.

The issue emerges at a time when St. Maarten’s economy continues to expand. Real GDP is projected to grow by 3.1% in 2026 following growth of 3.5% in 2025. The CBCS expects private demand to remain the main driver of growth, supported by household consumption, tourism activity and continued investment.

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