Barbados budget offers little concessions

Prime Minister and Minister of Finance, David Thompson. (File photo)

BRIDGETOWN, Barbados, May 21, 2009 – With uncertainty looming over the gravity of the world economic downturn over the next year or more, Prime Minister of Barbados David Thompson has delivered a Budget which he promised to be “flexible” with the times.

Thompson, who is also the country’s Minister of Finance, cautioned the people of Barbados from the outset of his presentation on Monday that there could be “no sure-footed policies” given that “we are walking an uncharted path; not having a reliable concept of how long or how severe the international economic and financial upheaval will last”. 

He also pledged that: “If we make mistakes, we will take stock, reverse them and get on the correct path. If we under-do, or over-do in any regard, we will correct that as well.”

With that said, the first-term leader then outlined a Budget that, far from being a “basket of goods”, stuck to the fundamentals of the economy and gave little concessions to the private sector or individuals.

Jobs First

Thompson detailed an Employment Stabilisation Scheme meant to encourage employers to maintain job levels even as unemployment in the country continues to trend upward.

Employers experiencing cash flow problems will be given an ease from making national insurance contributions on behalf of their employees, from July 1st, for one year. This “loan” from the National Insurance Scheme (NIS), as Thompson termed it, would be repayable over five years at a three per cent interest rate.

However, Thompson said employers would have to commit to maintaining current employment levels in order to access this ease, which he projected would likely cost the NIS BDS$34 million (US$17 million), although he said that the Unemployment Fund would be expected to pick up the slack over the next six years and make the contributions to the NIS lost from employers.

For workers who end up on the breadline, Thompson also made provisions for them to re-tool with the establishment of a BDS$10 million (US$5 million) fund through the NIS. The fund will be used for retraining and to provide a stipend once unemployment benefits run out for those who want to pursue studies either at the Barbados Vocational Training Board or the Samuel Jackman Prescod Polytechnic in courses ranging from Accounting to Tractor Operation.

Business Concessions

Other major concessions made by the Prime Minister to the private sector, aimed at bolstering companies’ abilities to ride out these tough economic times, included provisions to speed up payments to small businesses where government owes them for work completed.

He said that up to 90 per cent of amounts owed to the businesses would be facilitated through commercial banks, which then discount these advances with the Central Bank of Barbados. The “window” provided by the Central Bank under this scheme could be up to BDS$15 million (US$7.5 million), Thompson said.

After weeks of lobbying, the automobile retail industry also received some relief as Thompson announced that his administration had decided to reduce the effective excise tax payable on imported new vehicles by increasing the rebate payable to dealers from 15 to 20 per cent. He also announced that the Shipping (Incentives) Act would be amended to provide duty free concessions to any company engaged in commercial shipping and boating in the tourist industry, including games/sports fishers, for a period of up to 15 years.

Thompson also pledged to have draft legislation prepared to provide for exemptions from corporation or income tax and import duties for cultural practitioners and approved corporate, governmental and other entities; and projects designed for heritage development and preservation.

Recognising the value of the international business sector – which contributes over 60 per cent of the corporation tax collected by government, Thompson also revealed a number of new measures aimed at attracting more business to Barbados. He said that the Property Transfer Tax Act and the Stamp Duty Act would be amended to exempt Barbadian and non-Barbadian vendors and purchasers from these taxes on any transfer of the shares of a “holding company” – that is, a company with assets consisting wholly of foreign shares or securities or other foreign assets, and its income derived solely from sources outside of Barbados. He also said the International Trusts Act would be amended to allow for the creation and regulation of private trust companies. 

Housing 

Turning to the perennial problem of housing in Barbados, Thompson said his administration was committed to completing 572 housing units and providing 426 lots over the next financial year. Thompson said sites for 103 of those units had already been identified and marked for construction at a cost of BDS$23.8 million (US$11.9 million) over the 2009-2010 financial year, which would be added to the units across the island already in development and slated for completion by 2010.

Thompson also pledged that his Government would widen the value added tax (VAT) relief on building materials offered to first time home owners in his 2008 Budget. He said the qualifying amount for a refund of VAT on building materials would increase from BDS$150,000 (US$75,000) to BDS$200,000 (US$100,000) on a house costing not more than BDS$400,000 (US$200,000) for first-time homeowners who live in their houses. 

Taxation

Thompson continued to resist calls from internal and external pundits to raise VAT from 15 per cent.

“Strong recommendations were made to me for a one-off increase in the Value Added Tax. Indeed, a convincing argument for a three per cent increase in the VAT was made and seriously considered. However, I do not believe that the citizens of Barbados can bear such at this time,” he said.

“I am aware of the warning signals and I am cognizant of the concerns that will be articulated by rating agencies, the World Bank, International Monetary Fund and other relevant bodies. However, I also know the strain that workers in Barbados are under and the load they are already carrying and more will not be asked of the taxpaying and the consumer public of Barbados than that which they can reasonably bear,” added the Barbados leader. 

Thompson offered no further tax increases, but neither did he offer any further direct tax concessions to individuals hoping to avail themselves of more disposable income through further income tax rebates. Instead, the Prime Minister called on the nation to “cut and contrive” and “cut out wastage”.

Signalling a move in that direction, Thompson also imposed what some have described as the most onerous burden of his Budget – an increase in water rates from July 1st. While stating that the new rates had not yet been set, Thompson said they would not be the 100 per cent increase he had been advised to make. However, he pointed out that the current revenue levels of the Barbados Water Authority were unsustainable, especially given the BDS$50 million (US$25 million) overhaul needed of the country’s water system.