ICAB’s Comment on the Financial Statement and Budgetary Proposal 2016

In the 2016 Budget the Minister of Finance further increased the tax burden of Barbadians in an effort to reduce the fiscal deficit and to meet the increasing cost of providing key social services. In addition the Minister of Finance announced some measures to engender growth in the economy especially in the vital tourism sector. […]

By Reginald Farley

August 24, 2016

In the 2016 Budget the Minister of Finance further increased the tax burden of Barbadians in an effort to reduce the fiscal deficit and to meet the increasing cost of providing key social services. In addition the Minister of Finance announced some measures to engender growth in the economy especially in the vital tourism sector. Of concern however was the lack of detail in some of the proposals advanced.

The Budgetary Proposals were set in the context of the Governments’ policy priorities for the next three years as follows; increasing foreign reserves; achieving GDP growth of 2.5%; reducing the fiscal deficit; reducing the national debt; sustainable financing of key social services. These priorities are laudable and worthy of support.
Unsurprisingly the Minister spent considerable time seeking to calm concerns about the foreign exchange situation which arose following a decline in the level of foreign reserves and a comment from the Central Bank in the June 2016 report that “Foreign exchange outflows will be tightened by the measures to be announced in the forthcoming budget”. He sought to assure Barbadians that there are no plans to change the exchange rate, impose additional foreign exchange controls, and that the decline in the foreign reserves would soon be reversed by inflows from investments, development finance and sale of assets.

A major feature of the budget was the imposition of an additional $156.4 mil (per annum) in taxation through the Bank Assets Tax and the National Social Responsibility Levy. These taxes will eventually be reflected in increased prices for goods and banking services and negatively impact on the cost of living. The proposals for expenditure cuts are less definitive and include a cut of $50mil per year in transfers. This represents a clear policy preference by the Government for fiscal consolidation by increasing taxation rather than reducing expenditure. The ear-marking of the 2% tax on imports for spending on healthcare and sanitation also clearly signaled government’s intention to move towards direct payment by taxpayers for certain social services.

The measures to stimulate growth especially in the tourism sector are commendable. The proposed extension of the geographic areas eligible for special development incentives together with the amendments to the Tourism Development Act will stimulate investment and improve the quality of the tourism product. The technical and financial assistance to small business and manufacturing are also welcomed. However ICAB continues to advance the view that apart from specific incentives there is the need for the Government to focus on making it easy to do business in Barbados across all sectors as this will boost competitiveness. Between 2012 and 2016 Barbados has slipped from 84 to 119 of 189 countries according to the Doing Business Report of the World Bank. This ranking is lower than previous years and falls below the Latin American & Caribbean average of 104. Some of our higher ranked Caribbean neighbours and competitors were Jamaica (64), St. Lucia (77) and Trinidad & Tobago (88). These rankings may not be perfect measurement instruments of any individual country but they are used by investors to compare countries. Additionally a disaggregation of the 12 measures which comprise the ranking can provide very useful insight into areas for policy intervention.

They were a number of measures announced on which a comment cannot be meaningfully made because the proposals have not been fully formulated including; Duty-free zones; New legislation to replace the Fiscal Incentive Act; and National Policy Framework for MSMEs.

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Reginald Farley

Executive Director, Institute of Chartered Accountants of Barbados.

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