Prime Minister Mia Mottley today served up a dose of bitter medicine that will impact every single household and business here as her newly elected Barbados Labour Party (BLP) administration announced a $1.2 billion adjustment plan over the next three years to tackle the island’s economic woes head-on.
In what was termed a mini-Budget presentation, Mottley announced a three-phased plan, which she said was aimed at lowering the fiscal deficit from the current 4.2 per cent of gross domestic product (GDP) to $140 million or $1.4 per cent of GDP at the end of the next financial year, promote economic growth and shore up the reserves.
The plan is also intended to drive down the massive debt of close to 175 per cent of GDP to below 115 per cent of GDP over the next five years, and below 85 per cent of GDP after ten years.
The measures, which came approximately a week after the visit of a team from the International Monetary Fund (IMF) to carry out an assessment, does not take into account any likely savings from a debt restructuring plan.
“The overall fiscal position will improve considerably compared to the pre-administration Budget. Total revenue for the fiscal year 2018-2019 is estimated at $3,280 million or 32 per cent of GDP. Recurrent expenditure is estimated at $3,020 million or 29.4 per cent of GDP, while capital expenditure is estimated at $400 million or 3.9 per cent of GDP. This gives us an overall fiscal deficit of $140 million or 1.4 per cent of GDP,” Mottley explained.
Stressing that all Barbadians would have to play a part in the realization of such a recovery, Mottley, who donned a white jacket suit and red blouse with a floral scarf to match, to present her first Budget, said phase one of the plan would occur over the next three months.
This primarily includes the severance of the Barbados Tourism Marketing Inc (BTMI), the Barbados Tourism Product Authority (BTPA) and the Sanitation Services Authority from the consolidation fund and the partial removal of the Queen Elizabeth Hospital (QEH) from Government funding, which will save the Treasury approximately $215 million in a full fiscal year.
This means the BTMI and BTPA will operate under a private/public sector partnership.
“Phase one also focuses on a review of our tax revenue to impose more effective taxes, increase compliance, broaden our base between domestic and those visiting our shores. This will better allow us to reduce the fiscal deficit in this first year of our plan,” said Mottley, who expects the fiscal deficit to close over the next nine to 24 months.
Adding that the measures were “tougher than anything we have ever attempted before but [that are] necessary due to our current circumstances”, she said Government would run surpluses “in excess of three per cent and beyond from year three”.
“The Barbados Economic Recovery and Transformation plan is carefully balanced. It reduces the fiscal deficit in a full fiscal year by $183 million, raising the primary surplus from four per cent to almost six per cent.
“Combined with a further $200 million of fiscal adjustment in phase two and three of our plan, the fiscal consolidation under this plan before debt restructuring is $330 million when the measures are in full force,” she explained.
The change in funding of the BTMI and BTPA will result in travellers being slapped with a US$70 “airline travel and tourism development tax” payable when flying outside of the Caribbean Community (CARICOM), and a US$35 million for trips within CARICOM for tickets purchased on or after October 1.
This is intended to raise $95 million in a full fiscal year, $75 million of which will go to the BTMI and BTPA and the remaining $20 million to central Government.
Meanwhile, Barbadians will be made to pay a Garbage and Sewage Contribution levy (GSC) through the Barbados Water Authority (BWA), with households paying $1.50 per day while businesses will pay a cost of 50 per cent of their water bill – half of which will go towards funding the SSA and the other half to the BWA.
At the same time, Government will make a one-off expenditure of $15 million to purchase “second-hand” garbage trucks and tractors for the SSA.
In the case of the QEH, Mottley said its partial removal from Government funding would be replaced by a Health Service Contribution at a rate of 2.5 per cent, 1.5 per cent of which will be paid by employers and the other one per cent by employees. This is expected to raise $45 million in a full fiscal year.
Phase two, which will be carried out over the next year, will focus on expenditure reduction through review and analysis of central Government and state-owned enterprises, focusing on potential merger of some entities.
Phase three, said Mottley, will see the continuation of reviews of state entities in an effort to determine further restructuring, and the implementation of a tax policy reform.
“Phases two and three will generate a further $200 million of additional revenues and reduced expenditure,” she said, adding, “the combined effect of this budget and phases two and three will be to reduce expenditure and raise revenues by approximately $330 million once fully in effect. Over the course of three years this will improve the fiscal position by almost $1.2 billion”.
Turning her attention back to phase one of the Barbados Economic Recovery and Transformation Plan, Mottley announced that effective July 1, the road tax would be abolished and replaced with a fuel tax to be levied at 40 cents per litre on petrol and diesel and 5 cents per litre on kerosene oil, to raise about $80 million in a fiscal year.
The NSRL will also be repealed effective July 1, and Mottley said developments would be monitored by the Fair Trading Commission to ensure retailers reduce their prices “appropriately”.
Also taking effect on July 1 will be a reduction in annual registration fee for commercial vehicles and the introduction of a fee of $400 for the transfer or sale of a private vehicle and $1,000 fee on the purchase of a new or second-hand commercial vehicle, in order to raise $5 million for Government.
A new, higher income tax rate band of 40 per cent will take effect on July 1, for individuals earning $75,001 or more per year, which should result in an extra $41 million to the coffers in a full financial year and $31 million for the remainder of the current fiscal year.
Also effective July 1, “the highest percentage of corporation tax” will increase from 25 per cent to 30 per cent in order to rake in $57 million a year; a room levy on hotel rooms will be introduced at a rate of US$2.50 on B-Class and apartments, US$5.50 on A-Class and US$10 for the luxury hotels per room per night; and a Product Development Levy of 2.5 per cent will be introduced on direct tourism services.
Those operating in the “shared economy” including Airbnb and Homeaway type lodging will have to pay a ten per cent tax, effective August 1.
From October 1 all online shopping will attract Value Added Tax (VAT), while Government is expected to collect about $60 million in corporation tax from the international business sector as a result of international regulations.
In relation to Government’s expenditure, Mottley announced that $2.5 million would go towards addressing problems at the Supreme Court, while $700,000 will be made available for the temporary assignment of three judges to clear the backlog of about 10,000 criminal cases; and $10 million for a trust loan programme to assist entrepreneurs.
Government will spend $20 million on new buses for the Transport Board and $5 million for repairs; $10 million will go towards purchasing of equipment for the Ministry of Transport and Works and Maintenance; $10 million will be made available for a pit toilet elimination programme; $5 million for a climate resilient programme; $2 million for a smart Bridgetown project; and $25 million for a road repair and debushing programme.
In addition, Mottley said Government would fork out $27 million to fix the south coast and Bridgetown sewage systems; $10 million for the expansion of the Accident and Emergency department at the QEH; $2 million to strengthen the Customs Department and the Barbados Revenue Authority; $2 million for electrical upgrade at National Housing Corporation housing units; and $5 million per year to the Welfare Department “until poverty rates fall back”.
She also announced the extension of hours of two polyclinics, which will result in a cost of $3 million; the hiring of safety officers and additional social workers and guidance counsellors for seven secondary schools and a master teachers and senior specialist nurses to be established at the cost of $5 million.
Sticking to her campaign promise, the no-nonsense leader also said effective July 1, non-contributory pension would increase from $155 to $225 per week, costing the Treasury $20 million annually and $13.5 million this fiscal year.
She also said effective September undergraduate students attending the University of the West Indies would no longer pay tuition fees. This will cost Government $22 million annually.
While Mottley did not make mention of a reduction in the VAT as promised during the election campaign, she said the measures outlined today would result in a reduction in Government’s recurring expenditure by about $23 million by the end of the fiscal year.
“New capital expenditure for the fiscal year is $134.5 million. The net revenue for this fiscal [year] is $150 million,” she said.
Mottley also announced a five per cent wage increase for public servants for the period April 1, 2018 to March 31, 2019.