Prime Minister and Minister of Finance David Thompson presented a $3 billion budget today, May 18, 2009, announcing measures which he hopes will stabilize employment and widen the social safety net. However, coming on the heels of a dire warning from Standard & Poor’s and Moody’s about the state of the Barbados economy and government’s massive debt, today’s budget said little about how government will raise its revenue, and it is devoid of any taxes.

I.    Preamble
II.   Domestic Economic Review
III.  Debt, Debt, Debt
IV.  Social Safety net
V.   Musings on taxation
-     Your reactions

PREAMBLE (Live blogging commenced 3:45 pm) **

- Budget presentation begins with usual preamble: economy is bad, world in recession, “none of the developed countries have come up with the economic vaccine” to cure current economic malaise, says PM. Prime Minister says we must admit that there are some things we simply do not know how to fix.

- Thompson: “Sand sun and sea are as common as amusement parks and satellite TV” says PM, how do you convince a family to come to Barbados – where it would cost them six times as much compared to elsewhere? How do we become profitable and competitive in tourism, financial services – how can we promote our agricultural product, when it costs less to import than it does to produce here? How do we keep manufacturing competitive, when in countries paying slave wages can produce cheaper goods. These are the challenges we face? [Editor’s note: As the budget presentation progressed, little was said to answer these questions].

- Thompson invokes cooperation between John McCain and Barack Obama, David Cameron and Gordon Brown (of the UK) saying that there must be bipartisanship in difficult times. This is likely aimed at the opposition Barbados Labour Party. “The national good must supersede all considerations – now is the time for that approach to problem solving”. We need as leaders to inspire our population, Barbados depends squarely on us rallying the country behind objectives. “No one knows what lies beyond the bend, in fact we have not even seen the bend”. We will not shy away from making hard or difficult decisions for fear of political or other fallout.

- Thompson: The national cake has gotten no better. To protect the vulnerable, we will have to take some from the slightly better off. At the end of the day, it is one Barbados [Editor’s note: Thompson announced no taxes on the rich, despite this statement].

- Even more preamble about the recession globally etc. Rehashing what we’ve already heard. Likely intended to set the context of the actual budget, which hopefully will come shortly.

^ Back to top
v   Domestic Economic Review
v   Debt, Debt, Debt
v   Social Safety net
v   Musings on taxation
-   Your reactions

DOMESTIC ECONOMIC REVIEW

- Lower tourism receipts and oil prices stymied real output growth. GDP fell by 2.8% during the first quarter of 2009 due to recession. The capital account is in deficit and net international reserves fell by $48.3 million. Tourism activity continues to decline, and in the first quarter of 2009 ‘value added’ in this sector fell by 6.2%, due to a fall off in arrivals.

- Output in construction continued downward trend in first quarter of 2009, registering a 4.6% decline after a 3.4% decline in 2008.

- Unemployment level at end of 2008 was 8.1%, and during first quarter of 2009 unemployment was slightly less. In Feb. 2009, inflation was 7.6%. Foreign reserves are now at $8.7bn. The external current account has a deficit of $16.9m for the first quarter of 2009, a slight improvement over the levels for the comparable period in 2008.

- Barbados’ major trading partners will be hurt by recession and will have spillover effects on Barbados .. Real output will fall between 2-2.5% in 2009, much the same as in 2001. Tourism is projected to fall 4.5% by end of year. Unemployment is expected to rise by the end of the year [DT did not say by how much].

- Performance of the economy in first three months reflects the difficult times: output fell by 2.8%, one of the most pronounced retractions since 2001 recession. DT seems to be repeating himself with respect to the global recession, unemployment. Possible decline in net international reserves by end of 2009, even in spite of the US$100m bullet loan from Trinidad earlier this year aimed at propping up the foreign reserves.

- DT: Challenges for Barbados are phenomenal… we need to see ourselves as “TEAM BARBADOS”, facing a competitive match. We need not to market just hotels, sand and sea, but the whole Barbados experience. ‘Every Barbadian everywhere must be brought into Team Barbados network – we must use Facebook, Youtube and blogs so that people see Barbados as place of opportunity and employment’ [Editor comment: Really?].

^ Back to top
v   Domestic Economic Review
v   Debt, Debt, Debt
v   Social Safety net
v   Musings on taxation
-   Your reactions

DEBT, DEBT, DEBT

- Central government debt outstanding is over $5bn, 26.1% of this is in foreign debt. Central Government debt to GDP ratio was 83.2% in 2008, and is now 87.2% in 2009. Total public sector debt was 98.7% of GDP in 2008. By end of year, total debt is expected to be 102.3% of GDP.

- Government’s focus has been on local borrowing in the past.. In 2009, a change in the composition of financing is expected. The deficit is expected to be financed by local and foreign entities, and in 2010, it is possible that the deficit will be financed largely by local lenders.

- DT: The high level of debt is major cause for concern… especially because it causes us to question sustainability of our fiscal policy. This high level of debt has attracted scrutiny by S&P and Moody’s. Government therefore seeks to raise 5% of GDP in revenue by 2010, and if this is achieved it will bring the debt ratio down by 70% by end of 2018. Govt will also seek to limit foreign borrowing in this period [Editor’s note: DT did not say how he plans to do this].

- DT: We need to protect foreign exchange earnings, decrease public sector waste and reduce debt [Editor’s note: DT said nothing about how he would reduce public sector waste]. Downgrades in debt ratings mean that we will have to borrow at much higher interest rates and thus make our debt more expensive. Also, it means that international institutions may not want to buy our bonds.

- DT: S&P rating maintained at BBB+ but outlook changed from stable to negative. Moody’s said it placed government bond ratings on review for possible downgrade, suggesting ‘structural elements’ as part of the cause. Thompson then reads a press release from Moody’s, and blames the opposition BLP for high debt, saying that he and the DLP warned them about the debt, now ‘chickens have come home to roost’. He also said that the BLP saw ratings change to negative even in good economic times.

^ Back to top
v   Domestic Economic Review
v   Debt, Debt, Debt
v   Social Safety net
v   Musings on taxation
-   Your reactions

SOCIAL SAFETY NET

- DT: The poor cannot be allowed to slide back into deep poverty. Jobs, training, health and housing are the four main priorities. The protection of jobs is a social and economic issue, says Thompson.

- BIG NEWS… employment stabilization: Social partnership program to save jobs is key initiative. Social partners have maintained levels of employment in times when they otherwise wouldn’t. It has cut into their profits and is not sustainable – government understands this. The PM therefore is offering businesses with cash flow problems a 1 yr deferment of contributions to National Insurance, which will take the form of a loan. This arrangement becomes effective July 1, 2009 and the loan will be repayable over 5 years at a 3% rate of interest. To qualify, employers must have been tax compliant as of June 30, 2009 and must give a commitment to maintain current employment levels. Workers benefit by keeping their job and income, employers benefit because it solves cash flow problems.

- PM announces a waiver of owed taxes: NIS, Income tax, VAT. This waiver will be half of penalties and interest owed.

- Training: Suite of courses at SJPP and Barbados Technical & Vocational announced for Barbadians, people in training will continue to receive unemployment benefits even when they ordinarily would expire [Editor’s note: Seeking more clarification on this].

- Housing: most salient points – 20 units to be constructed at Tweedside Rd., 36 units at Epsteen(?) Village in St. Michael, 16 units at Searles Crt., 24 units at Haggat Hall, 20 units at Clapham. If you are working for less than $3,000 per month, unable to service a mortgage and have not had previous public sector housing, you also qualify for Rent to Own Programme.

- Health & the Queen Elizabeth Hospital: Prime Minister’s wife, Mara Thompson, is to head a voluntary task force to get Barbadians exercising, and a tax incentive for gym membership and gym equipment. [Side talk from parliamentarians saying that Mara Thompson should start with getting the Prime Minister to exercise]. Consultative work to start immediately on whether a new hospital should be built or the current hospital refurbished. Barbados only has one public A&E hospital.

- PM: Many charities do not actively seek to raise funds by way of covenant because of the long bureaucratic delays. Thus, covenant rules will be abolished. Instead, donation receipts will be accepted in place of the covenant. Small organizations will now not be required to file registration with CAIPO to be recognized as a benevolent organisation; instead a letter from the Ministry which the charity concerns will suffice. The PM has announced other measures to aid charities including: (i) expanding the Income Tax Act to include other organisations which can accept covenants (ii) allowing cash donations and property for tax purposes (iii) donations of more than $1 million will be carried forward for five years with restrictions on how much can be claimed each year.

- Small businesses will be able to receive up to 90% of the money owed to them after completing government contracts, instead of dealing with long bureaucratic delays. A committee of permanent secretaries has been set up to see this through, as well as ‘ensuring’ expediency of payment to temporary public sector workers.

- Difficulties with CL Financial in Trinidad have impacted on Clico Barbados. DT: “In the US, the government uses public sector funds to bail out such companies – we haven’t done that in Barbados. We are working on a private sector solution”. Insurance Corporation of Barbados pulled out of an arrangement to buy Clico Barbados subsidiaries, and as a result a Memorandum of Understanding has been signed between CLICO and the Government, which gives a government committee the authority to sell CLICO subsidiaries.

^ Back to top
v   Domestic Economic Review
v   Debt, Debt, Debt
v   Social Safety net
v   Musings on taxation
-   Your reactions

TAXATION

- Editor’s note: The PM alluded to raising taxes, and outlined none. He alluded to raising water rates, but has not announced a new rate. The taxation/revenue raising aspect of the budget was extraordinarily brief and superficial.

- DT: Many concessions cannot be made this year. Yet, dealers of new vehicles will get an increase in government rebates from 15% to 20%, which will reduce the excise tax they currently pay. Automobile dealers claim that there is currently a 43% decline in the sales of automobiles.

- First time home owners will also get refund of VAT on building materials costing up to $200,000 for a home valued no more than $400,000. There is also now no restriction on who is eligible for this refund – previously it was limited to individuals in a lower income bracket.

- Water rates will be increased. Current rates have the Water Authority in severe cash flow problems. A committee has recommended a 100% increase, but PM has advised that this rate is too high, and has recommended another review of rate increase. The increase [still unspecified] will be effective Jul 1, 2009. Also a reverse osmosis plant will be built to provide 5 million more gallons per day, old mains will be replaced and new mains laid.

- DT is on one hand talking about raising taxes, then he went on about cutting public sector wastage, then he said he also considered raising VAT by 3.8%, but then said that he wouldn’t… now, he is quoting the Bible and giving the benediction. And with that, it has ended.

Editor’s final note: Much was said, hardly anything was said.

Download full budget presentation

Antillean · Bridgetown, Barbados

The Antillean is a pan-Caribbean nonprofit media outlet, covering news, features and opinions on social issues in the Caribbean region and the wider Americas. Our mission is to encourage conversation on, and enhance the visibility of, social currencies within the hemisphere – issues which are often underreported in the mainstream media.

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