Revenue neutral it may be – the Minister of Finance is projecting a net gain of just $8 million. However, this budget covers a lot of ground and will generate significant discussion.
There is little fiscal space in Barbados in 2012 within which to pursue expansionary policies, even those that are clearly important to our future development and stability. The debt to GDP ratio remains uncomfortably high and staying on course with the Medium Term Fiscal Strategy is essential, especially given the influence of the rating agencies. This has not deterred our Minister of Finance from seeking to find solutions.
There has clearly been extensive consultation in advance of this budget, as evidenced by specific provisions across a number of industry sectors. The Minister is also pursuing some fundamental development initiatives with enormous long-term implications. Central to these are the investments in hotel refurbishment, energy efficiency, food production and tertiary education. Special emphasis continues to be placed on the creation of a green economy, for which the Minister has outlined a comprehensive vision to generate 20% of the island’s electricity through alternative energy. This is intended to generate significant investment and new jobs with the benefit of major savings in foreign exchange. Extensive provisions have been proposed to support the necessary investment. It is hoped that the specific provisions as outlined will create the necessary environment to push this forward.
While it is difficult to imagine many commentators questioning the wisdom of seeking to enhance the island’s performance in these critical areas, there will be much discussion around the use of NIS funds to finance these initiatives. At this time, options to source investment funds are few and the NIS has a large pool of funds for investment. Good investment options for those funds are always limited in our environment. However, the NIS has a heavy responsibility to achieve appropriate investment returns and to maintain a level of independence in its investment policy.
Will the provisions to reduce the taxation of international businesses be adequate to stem the recent loss of business to our zero-tax competitors? They certainly are a step in the right direction.
As always, we need to find a way to respond more quickly to changes in the international marketplace. While tax policy is an important consideration, we also have more to do to improve business facilitation generally. It is worth noting that the level of funding available to Invest Barbados also needs to be re-visited as it does not currently reflect the contribution and potential growth of this sector.
We believe the revised policy on Special Entry Permits for non-nationals who wish to retire in Barbados will provide the certainty necessary to create significant new investment. Many of the other specific policy measures will also be well received.
The Minister has wisely resisted the many calls to return the VAT rate to 15% and to reinstate the travel and entertainment allowances. The additional VAT revenue is required at this time. The adjustment to the upper level of the lower tax band from $24,200 to $30,000 and the reduction in the lower rate from 20% to 17.5% will achieve the desired positive impact on disposable incomes previously impacted by the loss of allowances. The promise to revisit the level of excise tax on oil imports should the price of oil again exceed $95 dollars a barrel may be important.
It is an important move to introduce some protection for depositors with credit unions.
We are hopeful for success with the privatization initiatives identified, which should generate much needed investment dollars. Efforts to energize a junior securities market should also create some interest.