We aren’t there yet.
The deficit may be down but structural challenges remain.
On Monday evening, the Honourable Christopher Sinckler, Minister of Finance, opened his remarks to the Barbados House of Assembly by first highlighting progress on key features of the Barbados Homegrown Fiscal Stabilization and Economic Revitalization Programme.
The Minister then revealed budget measures that will raise BB$200 million in additional taxes and excise duties in the full fiscal year.
Building upon initiatives first unveiled in August 2013, Minister Sinckler outlined key features of the Government’s medium term agenda. These are:
- Continued stabilization and growth of foreign exchange reserves;
- Invigoration of economic growth to 2.5 – 3.0% of GDP per year;
- Reduction of the fiscal deficit to no greater than the rate of growth in GDP by 2017 and to balance by 2020.
On behalf of the Government, Minister Sinckler took credit for the following achievements:
- At the end of March 2015, foreign exchange reserves amounted to BB$1,135 million, equal to 16.1 weeks’ worth of the import of goods and services;
- At the end of March, 2015, the fiscal deficit has fallen to 6.6% of GDP, compared with 11.8% at the end of March, 2014;
- The Barbados Tourism Authority had been restructured into Barbados Tourism Marketing Inc and Barbados Tourism Product Authority;
- The rate of VAT applicable to the hotel sector had been reduced to 7.5%;
- Airlift out of key source markets had been increased;
- Other significant developments were underway in tourism, energy including renewables, international business services, agriculture, telecommunications and housing.
The Minister then unveiled an array of measures aimed at boosting Government revenues. The most significant measure that will affect business is the removal of Group Relief and the reduction of the carry forward period for tax losses from nine years down to seven years.
Minister Sinckler anticipates this will increase annual receipts by BB$15 million. However, the measure is unlikely to be popular with the business community, and the reductions in trade registration fees, which he also announced, are unlikely to soften the reaction.
The Minister also set out changes that will impact the ordinary taxpayer. These include:
- An increase in land tax rates designed to raise BB$44 million;
- A new excise on mobile telephone usage designed to raise BB$32.7 million;
- The removal of certain income tax deductions and a reduction of the income tax rates for a net increase in revenues of BB$9 million;
- The removal of certain food items from exemption from VAT, plus the imposition of VAT on betting and gambling, all of which are designed to raise BB$40 million in total;
- An excise on sweetened drinks.
However, the effects of this last measure are partly offset by subsidies offered to milk producers, which will lower the cost of fresh milk to consumers. These combined measures may help the nation’s fight against non-communicable diseases, an issue the Minister remarked on at some length.
The Minister also announced a somewhat puzzling measure to retain the fuel cess levied on Barbados National Oil Company Limited (“BNOC”) products so that these funds may be diverted the to Queen Elizabeth Hospital (“QEH”) to help it meets its liabilities. While it is an unorthodox measure, the QEH will no doubt welcome it.
Minister Sinckler also referred to the need to reform the public sector, and introduced steps towards a Performance Monitoring Framework for state-owned enterprises. The Minister described this as a “phased-in approach. However, we believe this issue is one that requires swift and radical reform.
In summary, the Minister defined the challenges facing the Government and focused on measures designed to raise taxes and lower the deficit. However, there was less clarity as to how Government intends to deal with the underlying structural issues that continue to affect the cost and efficiency of public services.
Interest group insight
Barbados Chamber of Commerce and Industry (“BCCI”)
BCCI notes that they were disheartened to see the removal of Group tax relief measures and the shortening of the life of tax losses by two years. This will pose a significant burden for some of the more diversified groups domiciled in Barbados.
Institute of Chartered Accountants of Barbados (“ICAB”)
ICAB was pleased that Government proposed to raise the VAT filing threshold to BB$200,000 as this measure would ease some of the administrative burden on the Barbados Revenue Authority and small businesses and should hopefully reduce the processing time for tax administration.