The general cost of living in Barbados is set to rise, following a whopping increase in the contentious National Social Responsibility Levy (NSRL), introduction of a new sales tax on foreign currency transactions and a hike in the excise taxes charged on gasoline and diesel consumption.
With the expectation of raking in $542 million from taxes and expenditure cuts, overcoming a high deficit of $537.6 million, and achieving a small surplus of $4.4 million, these were some of the measures announced Tuesday by Minister of Finance Chris Sinckler in the highly anticipated 2017 Financial Statement and Budgetary Proposals.
The measures come on the heels of appeals by the private sector and Leader of the Opposition Barbados Labour Party Mia Mottley for no new taxes.
However, in his three-hour presentation, Sinckler also announced some expenditure measures, including plans for much needed debt re-profiling, as well as divestment of the Hilton Barbados Resort, for which Government is expecting to receive no less than $100 million in net proceeds, taking into account debt liabilities attached to that property.
Additionally, the Minister of Finance said a mid-year review was done with the aim of reducing Government spending by at least $50 million across ministries from the 2016/2017 Estimates and Expenditure, which was successful.
He reported that of $4 billion approved for the 2016/2017 financial year, there were savings of about $826.8 million, which Government could now use without displacing workers or disrupting provision of services.
However, Sinckler said given the fiscal pressures that Government faces this financial year “and into the next”, Cabinet had approved an across-the-board ten per cent cut in the existing approved Estimates of Expenditure for the financial year 2017/2018.
“At ten per cent we expect that we will be able to see an additional $82 million reduction in the Government’s expenditure this financial year,” Sinckler said.
The embattled Minister of Finance, who sounded somewhat apologetic Tuesday, acknowledged that the measures were not easy, but said they were necessary if the island were to maintain its 2 to 1 currency peg with the US dollar, as well as to lower the gap between revenue and expenditure and to maintain its high level of health care and other social services.
The controversial NSRL, which was introduced in September last year following the August Budget, was imposed on imported and domestically manufactured goods at a rate of two per cent on the customs value.
At the time, Sinckler had said that the levy was designed to help offset the cost associated with health care and maintaining a clean environment.
And Tuesday, he warned that the country continued to battle a number of deficiencies in those two areas, as well as in the provision of other social services.
Sinckler also said he was satisfied that the administration of the NSRL had finally “settled down”, before announcing that it would rise steeply from two per cent to ten per cent, effective July 1, 2017.
Following its implementation last year, the levy became mired in controversy and confusion, with local manufacturers expressing strong concerns about its application.
However, those concerns aside, Sinckler said the NSRL was now “a preferred method of revenue generation because it exempts critical sectors as per its original design” and also had the ability to reduce the demand for foreign exchange and shift consumption patterns more towards domestic production.
As a result, Government is expected to rake in $291 million in revenue from the NSRL for a full financial year and $218 million – $186 from the NSRL and $32 million from the Value Added Tax – for the remaining nine months of the current financial year, the minister of finance said.
In relation to the excise on fuels, which should save Government approximately $50 million, Sinckler announced that given the lower fuel prices compared to eight years ago, it was proposed that effective July 1, the excise on gasoline would increase by 25 cents per litre to reach 99 cents, while the excise on diesel would increase by 24 cents to 44 cents.
This will bring the total retail price on gasoline to $3.05 per litre and for diesel to $2.25 per litre, up from $3.00 and $2.15 respectively.
“Given the continued relatively subdued levels of price increases for both the world oil and imported refined products, we have determined that an increased excise would be useful in assisting Government to meet its deficit reduction targets without placing undue burden on Barbadians,” he said.
In announcing the fee on foreign exchange transactions, Sinckler pointed to the precarious fall in the domestic foreign reserves to 10.3 weeks or $681 million at the end of December last year, saying while the deficit figure had moved slightly up to about $749 million or 10.7 weeks at the end of March, it was still not entirely safe.
“More has to be done to stem the demand for foreign exchange, particularly the demand for consumer durables. In an effort to signal the need to reduce the demand for consumption goods, I propose that, effective July 1, a broad-based foreign exchange commission be charged on all sales of foreign currency at a rate of two per cent. This will extend to, inter alia, all wire transfers, credit card transactions, and over the counter sale of foreign currencies,” he said, without giving details.
The measure is expected to raise an estimated $52.5 million over the remainder of the current financial year and $140 million over a full financial year.
Acknowledging that the new measures would impact on the “general level of prices” and “cause the cost of living to go up”, Sinckler said this would be most evident from the steep rise in the NSRL.
“There will be a general increase in the cost of living to Barbadians,” said Sinckler.
“However, having demonstrated that these measures are necessary to stabilize debt levels and to create a platform for the realization of greater, more sustainable growth, it is anticipated that economic activity will rebound after a short period of sacrifice, and we will all reap the [rewards].”
Sinckler also announced that Government would grant another tax amnesty to those who owe outstanding taxes from June 1 to November 30, 2017, while promising improved tax administration.
In relation to the debt re-profiling, Sinckler said the proposal was for the two local entities holding significant portions of Government debt – the Central Bank and the National Insurance Scheme – to engage in discussions “for a possible swap programme where they and Government can reissue some existing securities in their portfolios at lower interest rates agreed by the parties”.
Stating that discussions had already started in this respect, Sinckler said the move should redound to about $70 million in savings on the interest expense in the current financial year.
Sinckler, who started his presentation by recalling his experience when the country was faced with similar tough economic decisions during the early 1990s, ended on a similar note, pointing out that the present situation was not very different from back then.
And likening the current administration to the former Erskine Sandiford Government, which was ousted from power after serving up some very bitter medicine, he said the Stuart Government was currently “taking the tough decisions in the best interest of the country and putting people and country above politics, party, popularity and yes, even the polls to come”.
Elections are due by the middle of next year.