Bitter-Sweet Medicine: Election Promises Fulfilled But New Taxes Announced to Save Barbados Economy

Prime Minister Mia Mottley announcing the tax measures in the Budget in Parliament yesterday.

BRIDGETOWN, Barbados, Tuesday June 12, 2018
– Prime Minister Mia Mottley yesterday announced she was fulfilling some of her Barbados Labour Party’s (BLP) election promises, including scrapping a controversial tax, increasing pensions and reversing a decision to force university students to pay their own tuition. But she has also imposed a series of taxes and other measures as part of her government’s BDS$1.2 billion (US$600 million) plan to rescue the country’s economy.

Delivering a so-called mini-budget themed ‘All Aboard – For Love Of Country’, Mottley said the three-phase Economic Recovery and Transformation Plan – which emerged from discussions with the Social Partnership in her first week in office following the BLP’s whitewash in the May 24 polls – would require that the burden be shared by all Barbadians, but promised that the most vulnerable would be protected.

Among the measures which will go into effect from July 1, are: a repeal of the 10 per cent National Social Responsibility Levy (NSRL); an increase in the minimum non-contributory pension from BDS$155 (US$77.50) to BDS$225 (US$112.50) per week; and the abolition of Road Tax and the introduction of a fuel tax at a rate of 40 cents per litre of petrol and diesel and five cent per litre on kerosene.

Prime Minister Mottley also announced that her government is rolling back the previous administration’s decision to stop paying tuition fees for Barbadians pursuing undergraduate studies at the University of the West Indies (UWI).

She also revealed that there would be a five per cent pay increase for public servants for the period April 1, 2018 to March 31, 2019.

However, new taxes are being introduced.

From August 1, a Garbage and Sewage Contribution (GSC) will be payable for private residences at a rate of BDS$1.50 (US$0.75) per household daily, while commercial premises will pay 50 per cent of their existing water bills, with 25 per cent going to Sanitation Service Authority (SSA) and the remaining going to the Barbados Water Authority (BWA).

A Health Service Contribution at a rate of 2.5 per cent on income, with 1.5 per cent paid by employers and one per cent by employees, will also take effect October 1; and Value Added Tax (VAT) will be added to online transactions undertaken by Barbadian residents from October 1, 2018.

Additionally, come July 1, there will be a new higher income tax rate band of 40 per cent on the part of annual income greater than BDS$75,000 (US$37,500).

It will also become more costly to travel out of Barbados and stay at hotels and other accommodations in the island. That’s because, effective October 1, an Airline Travel and Tourism Development tax of US$70 will have to be paid by passengers flying outside of the Caribbean Community (CARICOM), while passengers flying within CARICOM will pay US$35; from July 1, there will also be a Room Levy on hotel rooms – US$2.50 for the B Class and apartments, US$5.50 for the A Class and US$10 for the luxury hotels per room per night –; there will be a 10 per cent tax on all shared economy such as Airbnb, Homeaway, Expedia, etc. from August 1. In addition, effective July 1, there will be a 2.5 per cent Product Development Levy on Direct Tourism Services.

The Prime Minister further announced that government will remove the costs of the Barbados Tourism Marketing Inc. (BTMI) and Barbados Tourism Product Authority (BTPA) from its budget by entering into a Public-Private Partnership between government and the tourism sector.

“The BTMI will be funded through the proceeds from the Airline Travel and Tourism Development tax which the Government will collect and handover to the BTMI/BTPI. The BTMI will now be led and managed by the private sector,” she said.

The measures come on the heels of a visit by a team from the International Monetary Fund (IMF) last week. At the end of meetings with officials here, the mission cautioned that Barbados “is in a precarious economic situation”.

“International reserves have dwindled to US$220 million, while central government debt is unsustainable. The fiscal deficit has decreased over the last few years but remains large, at about 4 per cent of GDP in FY2017/18. Meanwhile, the Central Bank of Barbados (CBB) is reporting a contraction of output of 0.7 per cent in the first quarter of 2018 (over the same period last year),” it said.

Prime Minister Mottley said yesterday that the revenue and expenditure measures she announced would reduce the deficit by BDS$183 million (US$91.5 million) in a full fiscal year, raising the primary surplus from four per cent to six per cent.

“Combined with a further BDS$200 million (US$100 million) of fiscal adjustment in phase two and three of our plan, the fiscal consolidation under this plan before debt restructuring is BDS$330 million (US$165 million) when the measures are in full force,” she said.

“When we add the results of debt restructuring the plan reduces our debt to sustainable levels in five years. Yet it protects the most vulnerable in society. We have held to our campaign promises. It brings us to fiscal balance from this year, but it does not extinguish growth.”

The Prime Minister acknowledged that the measures will impact on all Barbadians and those who visit or do business with the country, but reminded that her government was safeguarding “the social compact” by asking everyone to “share in the sacrifice in this adjustment”.

“We will take care of your children’s education, the emergency and basic healthcare needs of your family, your roads, gullies and beaches, your safety, and your public health. We cannot do everything else on our own. We need all aboard, for love of country. Just as our grandparents and great grandparents faced great trials and tribulations and rose above them, so too shall we. We will do it together.”

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