A mere month after Minister of Finance Chris Sinckler publicly boasted of the performance of the controversial National Social Responsibility Levy (NSRL), it seems the dreaded NSRL is not meeting its revenue targets.
It was back in October that Sinckler revealed in Parliament that the NSRL, which was increased from two to ten per cent on July 1, had raked in $50 million in the three months following the announced the increase in his May 30 Financial Statement and Budgetary Proposals.
However, in the draft Barbados Sustainable Recovery Plan (BSRP) 2017, a copy of which was obtained by Barbados TODAY ahead of its tabling in Parliament next month, officials in the Ministry of Finance who prepared the document following consultations with the Social Partnership, have suggested that the burdensome tax was now likely to perform weaker than earlier expected.
In addition, the document warns that the lower than expected revenues would affect Government’s overall chances of achieving its fiscal targets, a similar caution to that given by the International Monetary Fund (IMF) yesterday in its latest Barbados economic assessment following the annual Article IV Consultation.
“There is already evidence of a slightly weaker than expected revenue flows from the National Social Responsibility Levy,” the draft document states.
“It is therefore perceived that the goal of achieving a balanced Budget and a small primary surplus of just over $4 million may be temporarily setback at the end of the fiscal year 2017/18,” it adds.
The document is based on the assumption that the national debt would continue to rise to reach 152 per cent of gross domestic product (GDP) within the next three years.
“The baseline profile of the current debt stock suggests a continual increase in debt levels to around 152 per cent of GDP by the end of the financial year 2020/2021. Given this trajectory, the ability to reduce debt to pre-crisis levels will require concerted efforts,” it adds.
However, officials indicated that if fiscal policy developments were in line with a primary surplus target of three per cent and accompanied by growth of about two per cent on average over the medium-term then “debt can be lowered to around 146.7 per cent of GDP by 2021”.
They also gave the assurance that Government’s expenditure would be slightly lower, based on the completion of the half-yearly Budget review exercise.
“With this outlook, the BSRP framework, which aims, to a large degree, to foster greater efficiency within the public service, will continue to support the 2017 measures and lend towards greater stability in the public finances,” the document adds.
However, with a projected minimum growth in the order of 1.75 per cent on average over the next three years, Government still sees light at the end of the proverbial economic tunnel.
The BSRP document therefore paints an overall positive economic outlook, with economic growth expected to increase gradually despite the softening impact of recently introduced austerity measures.
“Underpinning the growth framework is the continued buoyancy of the tourism and construction sector. These sectors will be supported by environmental and infrastructural projects to lend to an overall macroeconomic advancement of the economy. These developments will gather momentum over the medium-term horizon and will support wage and employment growth, thus boosting consumer spending. As a policy measure, tightening labour and product markets will be crucial to maintain aggregate economic activity,” it explains.
“Also underpinning economic growth are the efficiencies to be realized from improved business facilitation and increased productivity levels which are expected to contribute on average 0.15 per cent to the real economic growth rate.
“The growth projection for 2017/18 – 2020/21 incorporates a growth projection of 1.75 per cent on average over the medium-term.
“While a return to Barbados’ average historic growth rate of 3.0 by 2020/21 would be ideal, for the purposes of this exercise, we maintain a conservative 2.05 per cent growth rate over the projection horizon. This does not however, detract from the aim of achieving a growth rate of 3.0 per cent on average over the medium-term,” it adds.
In addition to the debt, the document however identifies a number of other risks, which it said could undermine growth and further deteriorate the fiscal position of the country.
“These risks include the incidence of natural disasters; higher international fuel prices which could increase budget transfers and electricity supply charges; higher than expected US and domestic interest rates; the Brexit effect which is still shrouded with uncertainty, creating a heightened sense of anxiety as it pertains to securing the gains made from the recent boost in tourist arrival intake from Barbados’ major source market – the United Kingdom,” the draft document explains.