In his Budget speech last August, Minister of Finance Chris Sinckler said the new fiscal measures announced would bring in around $175 million to the Treasury and help reduce the fiscal deficit to 5.8 per cent.
The officially titled National Social Responsibility Levy would bring in annual revenues of $142.1 million, with the levy raising $60.8 million, and another $62.1 million coming from value added tax, which would be applied after. But for the remainder of the current fiscal year the levy would yield $82.9 million.
And how could anyone forget the bank asset tax, whose rate would be increased from 0.2 per cent to 0.35 per cent, with an estimated annual revenue of $33.3 million.
Two per cent reduction in the deficit
With the Estimates for 2016-17 projecting the deficit at 7.8 per cent, this reduction to around 5.8 per cent would mean a two per cent reduction in the deficit of about $185 million (based on the GDP for the previous year which was put at $8.8 billion). Government would therefore end the fiscal year with a deficit of around $537 million instead of the then projected $723 million, said the minister of finance.
“Sweet dreams are made of these…” sang Annie Lennox.
With the Central Bank of Barbados reporting last Tuesday in its review of the economy’s performance in 2016, that the fiscal deficit was already $655 million for the first three quarters of fiscal 2016-17, that is, for the April to December period, it seems unlikely that Sinckler’s plans will come to fruition, as a hole has already been drilled through the target deficit of $537 million.
It seems that most of the deficit so far this year has been incurred on the current account in the last quarter. I say this because the Central Bank reported in its September review that the current account portion was $145 million for the April to September period, and then on Wednesday noted it had risen to $510 million when the October-December period was added. That suggests an increase in the current account deficit in the third quarter alone of $365 million.
The increased spending that led to the increased deficit also helped result in a fall in foreign exchange reserves from $900 million at the end of September to $681 million at the end of December, the lowest level the country’s reserves have been for many years and below what is considered the safety net of around 12 weeks of import cover.
However, at last Wednesday’s Barbados Chamber of Commerce and Industry luncheon, Prime Minster Freundel Stuart, who was the featured speaker, gave the country his assurances that despite the foreign exchange position seemingly tottering on the brink, Barbados would not run out of reserves.
Investment, loans pending
He reiterated the Central Bank’s assertion that around US$250 million in investment and loans, said to be pending at the end of December, were about to come in.
These “delayed inflows” that were on the way included funds from China for the start of the construction of the new Sam Lord’s Castle, and the expected sale of the Barbados National Terminal Company Limited (BNTCL) to Simpson Oil Ltd. for US$100 million. Stuart said that within a week of the luncheon he expected to be able to give the green light to the proposed Hyatt Hotel project in Bridgetown, and then offered a list of upcoming hotel projects which would bring more foreign investment into the country.
He said that Phase 2 of the Sandals Barbados project was expected to be completed by the end of November, the Sands resort at Sandy Beach in Worthing, Christ Church was to be completed by May and the Sam Lords project would start in March. On top of that, he said Sandals was to start building its Beaches Resort on the former Almond Beach Village site by mid-year, and the 750-home residential project, The Ridge, had also received permission to get underway.
No more revenue
Despite these assurances, it seems clear that the measures announced by the Minister of Finance in August, did not produce any more revenue than for the same period in the previous financial year.
For the April to December period in 2016, the Treasury took in
$1 682.7 million, which was nearly $6 million less than for the same period the year before. The reason was that all of the revenue centres produced more or less the same level of income, except for VAT, which brought in $50 million more. But this was offset by a decline in personal income tax receipts of about the same amount. So far, it seems, the $83 million expected from the health levy and its corresponding knock-on effect on the VAT have not produced the expected result, and therefore the Government’s revenues remained flat.
So not only have we started the year observing the complete failure, once again, of Sinckler’s plans to get the economy to do his bidding, but we have a looming foreign exchange crisis that will only be temporarily averted if all of the money falls into place as the prime minister indicated.
This would necessitate a ruling from the Fair Trading Commission that all was well with the sale of BNTCL to Sol, which would mark one of the most anti-consumer rulings made by the Fair Trading Commission in its history and could eventually cause Rubis to try to sell off its Barbados operations.
But then, who would want to buy into a market controlled lock, stock and oil barrel by the dominant player?
The Government is presiding over a sinking ship of an economy, with Admiral Dolittle suddenly finding his long-lost voice and asking, as calmly as possible, for everybody to start bailing.