"Our brother's keeper" - a budget of restraint

Our Tax Services team's analysis of the Financial Statement made by the Prime Minister to the Barbados Parliament on July 7, 2008.

Overview

Prime Minister and Minister of Finance The Right Honourable David Thompson delivered his first financial statement and budgetary proposals as Prime Minister in a presentation lasting approximately 3 and a quarter hours on July 7, 2008.

He stressed that international developments greatly influenced Barbados' economic fortunes and that the outlook for the next year was not good for the developed countries, and by extension Barbados, with oil prices reaching record highs almost on a weekly basis and corresponding increases in prices of other commodities creating cost-push inflation. He projected the moving average rate of inflation to be about 7.9% by year-end, dictated by these trends, and that this relatively high inflation would persist through the first six months of 2009.

The Prime Minister also stated that growth in the local economy, reflecting the deceleration i the global economy, declined to 1.8% during the first half of 2008 and he predicted an outturn of between 2.0% and 2.5% for the year.

The Minister saw the current major issues affecting Barbados as:

  • the anticipated slow rate of growth in tradable sectors, particularly tourism;
  • vulnerability in food and energy with resulting pressure on growth of the economy and the impact of inflation on the poor;
  • high national debt and an already high fiscal deficit; and
  • pent-up unsatisfied demand for housing by lower and lower middle income families.

The budgetary proposals were presented with these in mind and reflected fiscal restraint. The Prime Minister has clearly recognised that although his party may have won the election by promising to reduce the cost of living, this is much easier said than done.

The Prime Minister's presentation is not a "honeymoon" budget. It refelcts a subdued analysis of the global economy and its impact on that of Barbados. With the price of oil predicted to reach US$200 per barrel by year end, he warns Barbadians to be prepared for tough times ahead.

The Prime Minister's proposals anticipate a net revenue gain of $22 million, as set out in Appendix A of the full report, with the most significant measures being:
  • increased taxes on insurance premiums;
  • increased licence fees for insurance companies and financial institutions;
  • increased highway revenue;
  • increased liquor licence fees;
  • increased racing services registration fees;
  • increased gaming licence fees for slot machines and video lottery terminals;
  • a revenue tax on gambling;
  • a withholding tax on gambling winnings;
  • increased excise taxes on alcohol and tobacco products;
  • increased Town and Country Planning fees;
  • increased ad valorem environmental levies;
  • increased environmental levies on cars;
  • a mobile phone subscription fee for education and training;
  • refunds of VAT on lower income housing;
  • increased reverse tax credits;
  • increased pensions for disabled persons;
  • increased non-contributory old age pensions;
  • increased welfare grants;
  • increased vacation camps for children;
  • expansion of school bus scheme;
  • increased marketing budget of BTA;
  • restoration of credit union allowance;
  • increased retro-fitting allowance to cover energy conservation and alternative energy;
  • incentives for agriculture; and
  • a seed capital fund.


For the full analysis:

click here.