Barrow budget promises tax relief in medicines and food items
Prime Minister Barrow this morning presented his projections for the fiscal year 2008-2009. It is a budget that hit the past administration and now promises to restore fiscal sanity, to invest in the poor, and as he put it, to move forward his development agenda. It is a budget with a small deficit and G.D.P. growth, increases in revenues and expenditures and generally sprinkled with small doses of tax relief. Kendra Griffith reports on the Barrow administration’s first budget.
Prime Minister Dean Barrow
“It is with some sense of occasion, of history even, that I rise to move this reading of the General Revenue Appropriation bill for fiscal year 2008-2009.”
Kendra Griffith, Reporting
That budget is moving the U.D.P. government from its manifesto slogan of imagine the possibilities to “Realizing the Possibilities” and as such, promises to deliver.
Prime Minister Dean Barrow
“It comes in the middle of great challenges confronting our country; some of which we expected and some of which have blind sighted us. What I wish to make clear at he offset though, is that we seek no excuses. Not even in consequence of the trials visited upon us by mankind’s worst food and fuel prices, do we shrink from our obligation to deliver. And nothing on the face of the moral, political and economic wasteland bequeathed us by those that for ten long years plundered our resources, do we give in to any talk of despair, any contemplation of the slough of despond. Mr. Speaker, this then is the beginning of the realisation of the possibilities we always knew are inherent in our much blessed country, in our bountiful land of deep blue sky and bright green grass and limitless potential. By the time we are done here today, we would expect to have produced nothing less than a renewal of hope.”
But before Prime Minister Dean Barrow infused hope, he painted a grim picture of the fiscal situation left behind by the previous administration.
Prime Minister Dean Barrow
“The former administration and its creditors were forced into an involuntary restructuring to pay off the then existing levels of external commercial debt over the next twenty years. As a result, the country is now unable to access external commercial sources of finance and some of our domestic firms, including financial institutions, have been experiencing difficulty maintaining external credit lines because of the confidence gap that the national default and restructuring caused. What compounds the entire sorry mess, is the fact that there’s little visible benefit to show for the gargantuan amounts of money borrowed.”
“In 2007, the last full year of the previous era, Belize experienced economic slowdown with real G.D.P. growth falling to a mere one point six percent as compared to five point three percent in 2006. Output of papaya, sugarcane, banana, citrus, farmed shrimp, garments and electricity fell for a variety of reasons including weather, crop disease and the impending termination of trade preferences granted under the Caribbean Basin Initiative.”
“A substantial thirty-four point one percent increase in production of petroleum did help to offset this and the services sector also saw continued growth in free zone trade and telecommunications as well as a small increase in stay-over tourist visitors. In the month April 2007, the rate of unemployment stood at eight point five. This subsequently rose to twelve point one percent in September, partly due to the hurricane and the seasonal downturn in demand for labour. Because of the decline in production of several key export commodities: papaya, sugarcane, banana, citrus, farmed shrimp, garments, domestic exports contracted by seven pint six percent and growth in total export receipts, which include Corozal Free Zone trade and other re-exports, grew by only zero point three percent compared to the thirty-one point three percent expansion in the previous year. Imports, in the meantime, grew by four point nine percent resulting in a widening of the trade deficit and a more than doubling of the external current account deficit to three point four percent of G.D.P. There was, nevertheless, a slight improvement in the international reserve position mainly due to foreign direct investment inflows for projects in tourism, aquaculture, real estate and electricity. The restructuring of the public sector’s external debt earlier in the year also contributed to the improved reserve position by lowering, if only temporarily, both interest and principal payments. Consequently, at the end of the year the Central Bank’s gross official international reserves increased to two hundred and seventeen point one million, which was sufficient to cover two point three months of merchandise imports.”
Barrow says that trend carried over to 2008 and in the first quarter of the year, G.D.P. grew by only point six percent; exports were down by one point one percent, imports, however, increased nineteen point five percent, which the P.M. attributed to activity in the Free Zone and increased spending in fuel, construction, and electricity. But the bad news continued for both agriculture and tourism.
Prime Minister Dean Barrow
“The impact of last year’s hurricane is being seen this year in the reduction in production of several major agricultural commodities. Both the quantity and the quality of sugarcane have declined in the current crop year. Delivery of cane to the factory was down by almost twelve percent and sugar production shrank by fourteen percent. At sixteen point five million pounds, papaya output between January and April of this year was almost fifty percent lower than in the comparable period of 2007. Meanwhile, citrus deliveries for the 2007/2008 crop year up to April has declined by a seventy percent decline, with decreases in orange and grapefruit deliveries of eight percent and four point five percent, respectively. Juice production, has declined by six percent. In contrast, banana producers increased both production and exports. Banana export volume rose by seventy-four percent to twenty-seven thousand, one hundred and ninety-four metric tons while earnings were up by ninety-two point two percent to twenty-three point five million dollars in the first four months of 2008 as compared with the same period last year. Exports of petroleum also increased by eleven percent with earnings increasing by one hundred and eight percent. These increases didn’t fully compensate for declines in other export commodities, however, and the trade deficit consequently has increased by sixty-two point eight percent—eighty-nine point two million dollars—relative to same period of 2007.
In part, due to the economic slowdown in the U.S. and competition from other destinations, there has also been decline in the number of stay-over visitors and cruise ship arrivals; two point one percent and nineteen respectively, with total visitor arrivals amounting to three hundred and forty-four thousand, eight hundred and one between January and April 2008 as compared to four hundred and five thousand, three hundred and thirty-seven for the same period last year.”
With those realities staring him in the face, Barrow said they were “determined to do things right, hence the national consultation with various sectors which he says was able to “influence the budget.” Barrow then outlined the three priorities for his government.
Prime Minister Dean Barrow
“One, to restore fiscal sanity, moral well-being, and honesty in administering the business of government; two, to take the development agenda forward, investing especially in education, health, infrastructure, agriculture and tourism; and three, to look after poor people. I am pleased to say that in this budget, there will be no new taxes. … no new taxes on the Belizean people.”
So where will Barrow get the money to fund his eight hundred and twenty-four million dollar budget? The Minister of Finance is expecting G.D.P. to grow by five point three percent due to rising import price with real G.D.P. pegged at about two percent. Meanwhile the windfall tax on the petroleum industry is expected to bring in an additional ten million dollars.
Prime Minister Dean Barrow
“Having now, Mr. Speaker, a clearer picture of the nature and scope of the new supplemental petroleum tax, we are reworking the estimated receipts, and will circulate an amendment to the Revenue Estimates which will increase total revenue, increase the primary balance and improve the bottom line. These amendments will be circulated when I table the Supplemental Petroleum Tax Bill. Apart from the supplemental petroleum tax, we expect strong growth in the income tax, royalty, and production share revenues from the local petroleum industry as a consequence of course, of the very sharp rise in the price of world oil prices and an increase in production from the oil producing field by B.N.E. On the expenditure side, we are proposing an expansion in the recurrent budget to take account of moderate growth in wages and salaries, and increased operating expenditure reflecting rising prices of fuel and utilities. We have set a preliminary target for the Primary Surplus of four percent of G.D.P. and a target for the overall deficit of negative zero point three percent of G.D.P.”
“Total Revenue and Grants are estimated at eight hundred and sixteen point nine million dollars. This is an increase of ninety-six point nine million over the expected outturn for last fiscal year. Total Expenditure is estimated at eight hundred and twenty-four point eight million. Taken together, the result is an Overall Deficit of seven point eight million or minus zero point thirty-one percent of G.D.P. Provision for amortization payments are held steady at sixty-three point nine million, which, when added to the Overall Deficit, results in a financing requirement of seventy-one point five million.”
That financing expected to come from the C.D.B., Petrocaribe Loan Facility, and other loan disbursements. Last week, the P.M. also received the first half of a fifty million dollar budget support grant from the Republic of China on Taiwan.
And while those funds will provide some relief for the Barrow government, they intend to pass on some relief to the poor and a number of sectors.
Prime Minister Dean Barrow
“The new measures thus include: The removal of the General Sales Tax by applying a zero rate on a wide range of over-the-counter and prescription medicines and medical supplies including analgesics, cough and cold preparations, diagnostic testing kits for glucose in the blood and urine, insulin an insulin syringes, oral rehydration salts and solutions, dialysis fluids, oxygen, and anti-retroviral drugs. The classification of medical, dental, hospital, optical and paramedical services as Exempt Items for the purposes of the G.S.T. The effect of this is to ensure that the providers of such services will no longer be adding G.S.T. to their invoices for the services they provide. The removal of G.S.T. from a number of basic food items including powdered milk, cooking oil, chicken Vienna sausages, corned beef, coffee and tea.”
“To provide some immediate support to the agriculture sector as farmers seek to overcome the challenges and to take advantage of the opportunities, government is proposing: The removal of Revenue Replacement Duty from Fertilizers, The removal of Customs Duties from Animal Feed Concentrate, and The provision of import duty exemptions for agricultural machinery and implements, particularly for small farmers seeking to expand production. The provision later on of a significant line of credit for agricultural expansion.”
On tourism the government is looking at ways of restructuring the tax base and when it comes to fuel relief, G.O.B. is proposing to remove the revenue replacement duty from regular and premium gasoline, aviation and jet fuel and replace it with a flat tax to be added to the customs duties. Barrow also mentioned that B.N.E. is seeking to produce butane gas at a lower price than importation. Meanwhile, local entrepreneurs who are investing in refineries will see the implementation of an excise tax.
Barrow intends to spend two hundred and thirty-seven point nine million dollars in Goods and Services.
Prime Minister Dean Barrow
“Also included in this line Mr. Speaker, are a brand new allocation of over three million dollars to provide for education grants to first year high school students on a Dean’s list. A new allocation of two million dollars to maintain the supply of textbooks to primary schools students which the minister will see to. The textbooks are going to be improved, not for this school year but for next year the changes will be made. An increase of one point five million dollars in grants to the University of Belize, an increase of three million to cover the full cost of basic primary health care under the N.H.I.”
While Barrow is budgeting seventy-eight point seven million dollars for Capital Two programmes, he has several infrastructure projects, health sector reform, and ITVET under Cap three and will tapping into the twenty-one million dollars from the Petrocaribe Fund to finance several others, including a two million dollars food subsidy program.
Prime Minister Dean Barrow
“Of the five million U.S. we are taking out to fund immediate programmes, two million for the food subsidy programme, one million for a project to assist low income persons in getting proper titles to land through providing funding to pay for surveys, two million for housing improvements for low income persons. And I should make the point here again, Mr. Speaker, that that is only for home improvement for the poor. We are going to fund a home construction programme. We’re looking at two sources for the financing; Venezuela, not withstanding the fact that they have been burnt by the last administration, Venezuela it seems is prepared now to provide us with loan funds, not the grant funds that these people illegally diverted; loan funds, but loan funds on very concessionary terms. There’s also one point seven million dollars for the maintenance of municipal streets and drains. There is a one hundred and seventy-five thousand for a pilot project for skills training for single mothers. There is a one million dollar allocation for rural water systems.”
But one of the biggest announcements came when the P.M. revealed that he will be restarting the Development Finance Corporation.
Prime Minister Dean Barrow
“The demise of the D.F.C. has left a gaping hole in Belize’s small sector credit picture. There is now a critical and unsatisfied need for financing for small and medium enterprises and for student loans, and the new Government has been discussing with the International Financial Institutions, the absolute imperative of a revitalized and restructured D.F.C. Mr. Speaker, I am therefore, most happy to report that the Caribbean Development Bank has agreed in principle to a new loan of twenty-five million dollars to the Government of Belize, twenty-five million dollars to the Government of Belize for the seeding of the new D.F.C. We expect our formal loan request to go to C.D.B.’s Board by October and for D.F.C. to restart its lending operations by the end of the year.
And while Barrow sees hope and good governance in his Budget, Leader of the Opposition John Briceño says he’s seeing the P.U.P.’s projects coming to fruition.
John Briceño, Leader of the Opposition
“When you start to quickly look at his presentation, obviously, it is hollow and I think the budget is still at the stage of imagining the possibilities. The good news is that despite when the U.D.P. was in the Opposition saying that the budget was being blown out and that he previous government was spending beyond what the budget was projecting, when we look at the actual results, it’s that we have primary surplus, we have a recurrent surplus and the deficit was within three percent that we were targeting. That is part of the good news. When the prime minister was explaining his budget a lot of what was in the budget were basically project that were in the pipeline that the previous government have already negotiated with the European Union, with the I.D.B., with the C.D.B. So again, a lot of rehashing of the projects that were in the pipeline were presented today. But of concern certainly, is the issue when you look at the taxes. They will be increasing, collecting ten million dollars more from PAYE, from people that are working, the issue of the G.S.T. continues to increase. They are increasing revenues by almost a hundred million dollars and it gives some cause of concern.”
Briceño and the P.U.P. will get the opportunity to voice their concerns when the budget is debated on July twenty-fourth.
