The following is Part Two of the unedited text of the Financial Statement and Budgetary Proposals for the year 2010.
Financial Sector
On the financial sector side, domestic deposits of commercial banks declined marginally during 2009, while credit accumulation was severely constrained by the downturn in productive activity. However, liquidity in the financial system during the first half of 2010 remained relatively high with cash reserves at the equivalent of 7.5 percent of deposits, 2.5 percent points above Central Bank requirements. Bank deposits rose marginally while credit demand remained weak. At the end of the second quarter of 2010, interest rates on deposits and loans were unchanged, although the interest rate on treasury bills softened.
Mr. Speaker I now turn to the fiscal situation.
The fiscal year 2009/2010 proved to be a very challenging one for central government. The fiscal deficit, for the period 2009/2010 was estimated at $712.9 million or 8.6 percent of GDP compared to $396.9 million or 4.8 percent for fiscal year 2008/2009. This fiscal outturn reflected a marked slowdown in revenue intake on account of the weakened domestic economy, increased government expenditure that supported certain key sectors such as tourism, and support mechanisms for job retention within the Barbados economy.
Preliminary information from the Accountant General indicates that current revenue for the fiscal period 2009/2010 was $2,295.9 million, a decrease of $325.9 million or 12.4 percent from the amount recorded for the corresponding fiscal period 2008/2009. This fiscal outturn was $441.6 million below the original projection for 2009/2010
The decline in overall economic activity for the first nine months of 2010 contributed to a weak fiscal performance within the Barbados economy. In this regard, some components of tax receipts mirrored the decline in economic activity.
Taxes on incomes and profits for the period April to October 2010 realized $327.1 million, an amount of $66.2 million less than collected for the similar period a year earlier. Similarly Nontax revenue were also notably down, recording $35.7 million compared with $77.3 million a year earlier.
Taxes on property however showed a marginal increase moving from $88.6 million collected in the period April to October 2009 to $91.4 million in the corresponding period of 2010. Taxes on goods and services also registered increases moving from $526.0 million in the corresponding period of 2009 to $563.7 million in the period April to October 2010. Within this context, total current revenues collected for the period April to October 2010 stood at $1236.6 million, $62.8 million less than the similar period in 2009.
On the expenditure side, Government expenditure rose by $173.5 million in the period April to October 2010 over that of the similar period a year earlier. In order to achieve a measure of fiscal consolidation, cuts were made in the purchase of goods and services by $40.9 million and expenditure on government’s wage bill was also reduced to the tune of $447.1 million, or $15.5 million less than that for the similar period of 2009
The government deficit was financed mainly by domestic sources, especially the NIS scheme with a small contribution from foreign project funds. The fiscal deficit for the period April to October 2010 stood at 5.2 percent of GDP
Major Challenge for 2010- Economic Outlook
The outlook for the Barbados economy is predicated on the pace of recovery in the global economy. Current projections on the key macroeconomic indicators suggest that in 2010, the Barbadian economy is likely to register a marginal decline of 0.5 percent driven largely by an anticipated marginal improvement in the performance in both the traded and non-traded sectors.
These projections are in large measure however determined by the kind of recovery that will occur in our major source markets. While the global financial markets are showing signs of recovery, the Government of Barbados has acknowledged that there are a series of policy initiatives that must be continued in order to reposition the economy. These policy initiatives must however be buttress with other revenue raising measures in order to achieve the objectives of the Medium Term fiscal Strategy (MTFS). In that Strategy the target established for the fiscal outturn for 2009-2010 would be 7.2 percent. On current projects the fiscal balance expected to end the year at 10.01 percent short of any intervention from government and based on expected key supplementaries for the University of the West Indies of 60 million dollars, Ministry of Transport 31 million.
Indeed Sir, the general point of government financing of public institutions the point must made that even with declining levels of revenue we still are expected to provide almost full support to some of these critical services.
In 2006/20007 the government gave a total transfer to the Transport Board of 40,234,000. In 2007-2008 it gave 34,839,048. In 08/09 government gave 40,000,000.
In 2006/07 government gave a transfer to the UWI in the amount of 96,806,689. In 2007/08 it moved to 105,080,043. In 2008/09 it stood at 128,623,957 and in 2009/10 it was 118,000,000. For 2010/11 we are projected a transfer of 138,000,000.
Similarly for the QEH in 2006/2007 the transfer was 130,058,991. In 2007/2008 it grew to 138,653,944. For 2008/09 the transfer stood at 170,414,255 climbing to 161,294,000 in 2009/2010. It is now project to be 145,500,000 million for 2010/2011.
As you can see Mr. Speaker, from just these three one can easily glean the level of resources which government is call upon to provide when revenues are up or equally when they are down. These are critical institutions for which we are committed to support but if revenues are struggle the challenge becomes even greater.
Indeed on the current pace and with these and other major expenditure commitments for wages and salaries and debt services payments, the deterioration in the public finances means that we not only will not reach our Medium Term fiscal targets but that our goal of bringing down the national debt will also not be meet. This is so primarily case because government will have to continue borrowing significant amounts to meet its operations. Equally, our Debt to GDP ratios have risen appreciably in the last decade surpassing the accepted international average of 60 percent of GDP to now stand at 110 percent of GDP. This is further compounded by steadily declining levels of factor productivity across both public and private sectors. The reality Sir is that we are producing less every day and all Barbadian must stop and take stock of the fact this lower level of productivity is impacting on the country’s ability to pay its way as compensatory measures have to be put in place to allow the country to maintain its high standard of living. Put another way Mr. Speaker our declining levels of output are causing us to borrow more and live off other people’s savings.
This Sir, is unacceptable in any terms, and corrective action must be taken now. If we don’t do this, then the recovery we expect in 2010 will not materialize and the country will face the real spectre of another down grade by the international credit rating reducing our standard to below investment grade or junk bond status. That is a luxury we cannot afford and that I will allow to happen because of in action on the part of the government.
The current challenge within the Barbados economy will be how to balance the short-term need for continued policy support in order to strengthen the recovery with long term need to consolidate public debt in order to maintain fiscal sustainability. Therefore there will be a need to exploit policy synergies, especially between fiscal policy and structural reform within the economy.
In order to address appropriately this challenge and to provide further, a framework for recovery and growth within the Barbados economy, government must continue to strive to reach the targets set in the Medium Term Fiscal Strategy. This will constitute Government’s key crisis management tools for the realization of a quick recovery, adjustment and sustainable growth during this waning period of financial crisis and economic recession.
The Medium Term Fiscal Strategy 2010 to 2014, in collaboration with the Government’s Medium Term Development Strategy provides an operational plan for stabilization and recovery in the short to medium term while laying the framework for sustainable growth through encouraging strong foreign exchange earnings, increased productivity and competitiveness, the creation of private sector jobs and greater social advancement. These two planning documents also highlight the targeted policy interventions and strategies over the next five years and should be viewed as important recovery tools that will be used to guide the country as it emerges from the current global recession.
Mr. Speaker, I now turn to the Budgetary Proposals.
TAXATION
Mr. Speaker, the fiscal imbalance referred to earlier necessitates the Government taking corrective action. There are two sides to the equation, revenue and expenditure. Because of the structure of Government expenditure there is not a lot of room to exercise flexibility though we will be asking departments to for additional efforts in coming fiscal year. Preliminary projects without any additional revenue measures have provided for a fiscal deficit in 2011/12 of 8.4 percent. It is my intention to work with ministers to identify areas where savings can be made from the elimination of non-priority programmes, wastage and building greater efficiencies. Last Wednesday I met with all the Accounting officers to alert them ahead of the coming 2011/12 estimates process that a firm grip will be taken on expenditures and so we expect them to exercise the required frugality across their ministries and statutory authorities. For the rest of this fiscal year we will reign in expenditure in line with the projects of the Medium Term Fiscal Strategy projections.
However any attempts to correct the fiscal imbalance must of necessity involve revenue enhancement.
I therefore propose effective December 1st 2010 to increase the Value Added Tax rate from 15% to 17.5%. This increase in the VAT is intended as a temporary measure for the next eighteen months. I further propose to review this at the end of one year with a view to providing relief subject to progress in reducing the fiscal deficit. This measure is expected to raise an additional $124 million.
I also propose to eliminate the tax free allowances for travelling and entertainment granted to employees starting for the current income year. This measure will result in revenue savings of $25 million. This allowance was discriminatory to the self employed and corporations as such persons had to prove that the travelling was in fact expended and in the case of entertainment that the funds were expended for the purpose of earning revenue. The employees given these allowances were not required to do so.
The allowance for investing in mutual funds and savings with credit unions was useful as a means of stimulating investment using these two vehicles. There is no doubt that it has contributed to the growth of credit unions and today one of the largest credit unions is the owner of a mortgage company. The Credit Unions now control significant assets in the country and the larger ones such as Public Workers are bigger than some banks. There is therefore no need for an allowance to encourage persons to save with credit unions I therefore Mr. Speaker will remove this allowance with effect from income year 2011. This will result in a saving of $9 million.
Additionally Mr. Speaker, The excise tax on gasoline will be increased by 50% with effect from December 1, 2010 as a revenue raising measure. The new Excise on gasoline will be $0.5358 per litre. This measure is expected to raise an additional $22.7M in a fiscal year.
User fees:
Mr. Speaker, I now to the issue of user fees.
The Barbados Drug Service
The Government of Barbados established the Barbados Drug Service in 1980. In 1981 it was expanded to ensure that every citizen gained access to drugs “free of cost” at point of service from the public sector pharmacies, but with an option of co-payment if beneficiaries decided to receive the drugs from private sector pharmacies.
This was changed subsequently and all formulary drugs were made available to citizens free of cost irrespective of whether the prescription was filled in the public or private pharmacies. In addition, the number of chronic illnesses for which free drugs were provided was increased.
Consequently Mr. Speaker, expenditure under the scheme has risen astronomically over the years such that the very viability of the scheme is threatened. The cost of the provision of free drugs has risen from $9.2 million in the financial year 1992/1993 to $49 million by 2009/2010. In order to ensure that Barbadians continue to enjoy “free drugs” I propose that effective 1st April 2011 persons who have their prescriptions filled in private pharmacies will pay a dispensing fee as follows:
Drug Cost $
Amount to be paid by Patient
$0.01 – $2.00
$5.00 – Drug Cost
$2.01 – $10.00
$5.00
10.01 – $20.00
$7.00
$20.01 -$40.00
$12.00
Over $40.00
30% of the cost of the drug
This measure will result in an inflow of about $12M annually but $1M of this will be reinvested to ensure that our public pharmacies are equipped with the necessary human and technological resources to meet the increased demand.
Immigration
The Immigration Department plays a significant role in securing the borders of Barbados while facilitating the entry and exit of citizens, residents, visitors and business persons.
As the world responds to the growing challenges of human trafficking, transnational crime and narco trafficking, the Department must honour its commitments to the international and regional organisations with respect to the movement of people.
Accordingly, significant outlays have been made in equipment to introduce machine readable passports, increase in human resources to deal with increasing traffic at the ports of entry, provision of training etc.
It is felt therefore that the persons benefiting from these services should pay a reasonable fee.
Accordingly, with effect from December 1, 2010 the fees for services provided by the Immigration Department will be increased as shown in the appendices attached.
The increases are expected to yield $4 million in revenue.
Environmental Levy
Since its introduction in 2007, this levy which was intended to provide government will additional resources to mitigate the effects of trading on the environment, has been a major cause of concern for the Government. Firstly, it was being discriminately applied to regional and extra regional goods but not on like products produced in Barbados. This was in clear violation of our obligations under the Revised Treaty of Chagaramus which establishes a national treaty obligation for all single market parties.
At the same time Barbadian businesses, especially those in the manufacturing sector have petitioned government not to impose the levy on locally produced goods as this will more than likely raise the cost of inputs into the manufacturing process and lead to uncompetitive prices.
Having had extensive consultations on the matter with local business people and Ministry staff I have decided to abolish the environmental levy with effect from December 1st 2010.
This will also have the added effect of modulating the impact of proposed increases in the VAT on Barbadians as this added cost to each item is removed.
Public Transportation
Mr. Speaker, the Transport Board has continued to accumulate large deficits over the years. The entity is unable to meet its debt servicing cost and based on the current tariff is unable to meet its operating costs. The Transport Board however provides an essential service in transporting people across the island at a reasonable cost.
In the present circumstances however, the Government cannot afford to carry the level of subsidy required to support the operating cost of the Board. Moreover the Board should be placed in a position to allow it to operate in a more businesslike manner thereby reducing the extent to which they rely on Government for transfers. I therefore propose that with effect from January 1, 2011, bus fares will be increased by 50 cents per ride in an effort to improve the finances at the Transport Board. This measure will add $8.4 million in revenue to the Transport Board.
Additionally Sir, in the area of transportation I believe it is now common knowledge that the Public Service Vehicle Sector has and continues to provided invaluable transportation services for thousands of Barbadians as the engage their daily activities. This sector which now accounts for upwards of 70% of the country’s transport requirements constitutes a critical part of the economic and social fabric of the country.
Over the years however indiscipline on the nation’s roads and failure to institute voluntary corrective measures have dogged the operators and caused great public outcry about level of seriousness which owners and operators have towards forging change in the sector and cleaning up bad behaviour.
These things notwithstanding, even the most severe critic of the sector cannot deny the vital services which the sector provides to Barbados and Barbadians. Moreover such persons would be forced, much as I am, to equally concede that PSV operators have been operating under the most trying circumstances in the past decades with bus fares not increasing, while the cost of fuel and spare parts escalating at the same time. They have had little or no relief from successive administrations.
Having met and consulted with sector leaders I have heard their pleas and am now prepared to offer the following relief:
The current fees for mini-buses and route taxis are $7,250 and $4,500 per-annum. I therefore propose to reduce the fees as follows $3,625 and $2,250 respectively effective 1st April 2011. The revenue lost to the treasury will be $1.2 million
However, these reductions will be performance based as operators will only be able to access these benefits if they have demonstrated proper standards on the public roads. Some of these will include the wearing of uniforms by employees while on the job; a drastic reduction in traffic violations; the elimination of the playing of loud and offensive music and generally good deportment.
The Association of Public Transport Operators has agreed to work with the Ministry of Public Works and Transport, and the Royal Barbados Police Force to establish a system of appraisal on which operators will be assessed to determine eligibility for the relief.
Additionally, at present PSV drivers are required to pay $230.00 per annum for a driver’s license in addition to the fee payable for heavy duty license. On the other hand Transport Board drivers pay $80 per annum to perform the same task. This is discriminatory and should be standardized. Consequently effective April 1st 2011, I propose allow PSV employees to pay a flat renewal rate of $80 dollars thus bringing them in line with their counterparts. This will be a revenue loss of approximately $185, 000.
Liquor Licenses:
In his 2008, budget the late Minister of Finance considered and instituted a series of liquor license fee increases. Most of these have gone through with only marginal impact on the operators. However several small shop operators, including some in my own constituency have complained that the increases were too steep and have drastically eroded their earnings. I have heard their protestations and now propose to reduce the retail license for liquor $1000 to $500 effective immediately. This should reduce the cost of doing business for small shop-keepers.
Mr. Speaker Sir, concomitant with the measures I have just announced to stabilize our public finances we fully appreciate the fact that in order for efforts at fiscal consolidation to be sustainable it is critical that the return a growth path in the shortest possible timeframe. In this regard the government has concluded that it will be absolutely necessary for some immediate interventions to assist some of key productive sectors, tourism, international financial and business sector, manufacturing and agriculture in their quest to forge a return to positive growth. From our analysis 2011 is likely to be the year in which real GDP is expected to grow and our intention is to provide critical assistance to ensuring that this goal is achieved. I am advised that forward bookings for the tourist winter season as looking strong and coupled with resurgence in foreign direct investment and construction especially in the first half of the year we are quietly confident that our predictions will be realized.
Mr. Speaker, I will now outline further measures to assist these sectors while outlining the road map of domestic and foreign construction initiative we expect catapult our economy back on a growth trajectory.
Tourism
Tourism is one of the pillars of the Barbados economy and our rebound from the recession is dependent on the performance of the tourism sector. The Barbados Tourism Authority will therefore embark on a new marketing program in the UK one of our principal markets for long stay visitors, featuring radio and television advertising at a cost of $6 million. This would be on top of the additional $10 million provided last year.
The United Kingdom (UK) remains Barbados’ most important source market for tourists. Despite the economic difficulties brought about by the recession in that market, and the significant austerity measures recently introduced by the British Government to reduce its fiscal budget deficit, it is considered important that Barbados make all efforts to maintain a high profile in the market and position itself for the improvement in UK economic fortunes that are expected to emerge in the next 12-24 months.
It is important that the BTA invest in those opportunities in the UK market that guarantee the highest return on investment. Given the increase in UK airlift to Barbados that will come on stream from March 2011, it is strategically wise to frontload expenditure on an advertising campaign and use the attention created to provide an impetus to increase the number of UK arrivals to Barbados.
In addition to the foregoing it is necessary to upgrade the Small Hotels Sector. Barbados is a world class destination, offering world class products and services and this must be evidenced in the hotel plant at every level of tourist accommodation. Tourists today are more discerning and have come to expect much more for their dollar. In order to remain competitive, the product offering of the small hotels must improve. European Tour operators, for example, expect a minimum of a three-star product for their customers. Additionally, the new and emerging markets being pursued by the BTA in Central and South America prefer hotel products of three-star standard and above. Those small hotels falling below this standard are denying themselves lucrative business opportunities.
It is therefore proposed that a $20 million Small Hotels Refurbishment Programme be established that would allow approximately 300 rooms in the small hotels group to become aligned with established market standards. It is further proposed that the programme should be executed by the Small Hotels Investment Fund (SHIF) on terms and conditions similar to those in place for accessing financing from the SHIF by members of the Intimate Hotels of Barbados Group (IHB), and may indeed also be accessed by the IHB Finally, it is proposed that the programme be managed by the Enterprise Growth Fund Limited.
In addition, I propose to establish a Tourism Loan Guarantee Facility to provide assistance to those hotels which require working capital support. The provision of guarantees presents a viable option for government as it will enable the sector to meet its working capital needs with little damage to government’s fiscal position.
The objective of the Tourism Loan Guarantee Facility (TLGF) is to contribute to the long–term sustainability of the tourism sector and to this end, the TLGF will provide credit enhancements to qualified financial intermediaries for existing debt service and new short-term loans to hotels and enterprises providing accommodation for tourists in Barbados.
Eligible Activities
The eligible activities will be new loans and debt service payments through approved financial intermediaries in respect of hotels and enterprises in the tourism sector that provide accommodation for tourists in Barbados.
The TLGF resources will be used for, working capital purposes including maintenance and minor repairs of hotels and enterprises providing accommodation for tourists in Barbados as well as, the payment of debt service incurred by hotels and enterprises providing accommodation for tourists in Barbados.
Size of Facility
Indications are that working capital support needed for the sector is around $100.0 million. Based on an estimated default ratio of 15% and 100% guarantee, the facility will require capital of $15.0 million to be able to provide guarantee cover for facilities totaling $100.0 million.
This facility will be established January, 2011.
International Financial and Business Sectors
Given the importance of the International Business Sector to the Barbados Economy, it is a continuing cause for concern that the contribution of the International Business Sector to GDP, employment and foreign exchange cannot be quantified. In the absence of such data, it is impossible for both the Government and the Private Sector to determine the level of investment that is required to grow the sector and to make informed decisions relating to the development of new markets and products.
It is our view that this deficiency can be addressed through effective collaboration between the Government and the Private Sector. In this regard, Government has engaged consultants to devise a methodology for gathering the required data and for updating it on an annual basis. The Private Sector fully supports this initiative and stands ready to provide input and assistance where required in order to ensure the success of the project.
In order to ensure that Barbados continues to retain its position as the second largest recipient of foreign direct investment from Canada, after the US, the Government proposes to allocate additional financial resources to Invest Barbados in the 2011 fiscal year to enable it to mount an aggressive and sustained marketing campaign in the major cities in Canada through a series of seminars and road shows over the next 12 months.
Additionally, with respect to Mexico, Government will explore the possibility of Invest Barbados appointing marketing representative in Mexico, who speaks Spanish, to assist in developing opportunities in the Mexican market as well as other countries in Latin America.
Government will also continue to work closely with the Barbados International Business Association to ensure that Barbados maintains its competitive edge in this highly competitive sector.
Agriculture
Mr. Speaker, agriculture remains one our critical sectors. Though it is no longer a major export sector, it provides a source of domestic food which must seen in the long term context of food security It is therefore importance to make some adjustments as follows:
Currently registered farmers are paying for water at a higher rate than the normal flat commercial rate which is available to manufacturers. This puts the farmers at a disadvantage and begs the question of equity in a competitive business environment. Therefore with effect from Jan 1, 2011 registered farmers can apply to the BWA to have the flat commercial rate applied to them. It is hoped that this contribute significantly to the island’s food security efforts. Farmers applying for this facility must have their irrigation supply separately metered and in addition have tensiometers to ensure that the water is being used efficiently. This will cost the BWA $5.7 million.
Manufacturing
Manufacturing provides local jobs and is a significant export sector particularly to the Eastern Caribbean countries. It must therefore be supported. In this regard government has mandated the Barbados Industrial Development Corporation to engage discussions with a foreign financier to procure a US$50 million loan, which government proposes to guarantee to allow the organization to build both internal capacity to assist domestic manufacturers, and other small businesses that call upon their services.
The loan is expected to assist with plan upgrade, technological advancements as well as some working capital to improve general production capacity. It is anticipated that once the parties agree the loan negotiations should be completed in early April 2011.
Capital Works – Public and Private
A central part of government’s plan to restore growth in the economy in the short term will rest on a strong resurgence in construction activity during the first part of 2011. This effort is expected to be led both private investors and an active public sector capital works programme.
Indications are that key private projects at Beachlands, Merricks and Four Seasons, Pickerings, Batts Rock, Apes Hill and Foul Bay will either initiate or continue into the new year. These along with an expected start of construction on the Cost-U-Less mega store at Warrens, and other smaller projects will give a welcomed boost to sector which has been struggling ever since the global recession started.
To match this, Government intends to accelerate its capital works programme behind the following major projects.
· The Warrens Road Expansion project due to start in January 2011.
· The US$50 million mains laying programme for the BWA expected to start in January 2011
· The NHC’s housing programme at Lancaster 1, St. James, for the construction of forty five (45) houses to start in February 2011 costing $4,187,500.
· Lancaster 2, St James, construction of forty one (41) houses expected to start February 2011 costing $4,397,350.
· Parish Land St Philip, construction of seven two (72) houses expected to start March 2011 costing $7,356,954.
Housing and Neighbourhood Upgrade Project with the IDB scheduled to commence work at Garden Land at the end of January 2011. The estimated cost is $5,116,781.00.
· Allen View to commence at the end of January 2010. The estimated cost of Allen View is $5,347,716.00.
· Cats Castle at the end of March 2011. The estimated cost is $8,502,611.
· And in Green Fields scheduled to commence at the end of April 2011. The estimated cost is $9,493,462.
· Extension of Mangrove Pond Landfill at Cell four at a cost of $27.5 million schedule to commence in February 2007.
· The new School Meals Centre schedule to commence mid 2011.
It is our anticipation that with all of these fully initiated, together with increased tourism valued added, and continued growth in non-sugar agriculture we would have constructed a pathway to positive economic expansion in the economy leading to a creation of new jobs and positive knock-on effects in the retail and wholesale sectors of the economy.
It with this strategy in mind that we are confident of a 2 to 2.5 percent increase in real GDP.
CULTURAL INDUSTRIES
Mr. Speaker, the Government of Barbados, in recognition of the potential resource value of cultural and creative expression, undertakes to develop this renewable resource as a means of unleashing the innate creativity of our people.
Cultural Industries are among the fastest growing contributors to GDP in the developed countries, with only marginal contributions accruing in developing countries.
In recognition of this economic potential, the Government will introduce the Cultural Industries Development Bill during 2011, as a measure for stimulating development of the cultural sector. The regime of incentives, similar to those designed to stimulate growth in the tourism sector, has already been approved by the Cabinet and is currently being incorporated into the Bill. The legislation will extend income tax and customs duty concessions to individuals, groups and companies operating in, investing in or making philanthropic contributions to the sector. The concessions will also be granted in respect of expenditure on marketing, research, product development and training and, have been specifically extended to facilitate film and motion picture development as well as heritage and conservation activities and projects.
Mr. Speaker, for the past thirty-four years the Richard Stoute Teen Talent Show has been the bedrock around which vibrant performing arts industry has developed. Local music industry stars such as Edwin Yearwood, Terencia Coward, Allison Hinds, Anderson Armstrong, Rupert Clarke and Adrian Clarke have emerge from this veritable nursery of young talent in Barbados.
Over the years however Mr. Stoute though doing the contest as a labour of love and a contribution to the young people of Barbados, has been finding it difficult to attract the levels of sponsorship required to truly take this completion to another level.
Given the undeniable importance of this contest to the cultural, social and economic landscape of Barbados and the need to maintain and ultimately institutionalize its existence the Government of Barbados has agreed to throw its full support behind the creation of a Richard Stoute Teen Talent Competition Trust to assist with the financial, technical and operations management of this national institution.
The Trust, which will be funded by an initial investment of 400,000 dollars, will formulate and partnered by the Enterprise Growth Fund Limited which will establish a governing Board on which Mr. Stoute will sit along with other technical personnel specially chosen to develop and the show into a major instrument of tutelage in the performing arts. Further details on this initiative will be made known in the coming weeks.
Business Facilitation
Mr. Speaker, ecommerce is the way of the future and the internet will present many business opportunities especially for small businesses. The Government will therefore mandate that part of its subvention to the Small Business Association be used for the provision of website development and ecommerce services to members.
Mr. Speaker the threshold for the mandatory audit requirement under the Companies Act of Barbados has been set at $1M since 1982. Representation has been made by stake-holders including the Institute of Chartered Accountants for the raising of this threshold. I have taken into consideration their recommendations and therefore the threshold will be increased this year from $1M to $2m affecting companies with year ends after December 31, 2010. This threshold will be increased to $4M in 2014 for companies with year ends after December 31, 2013.
Equally Mr. Speaker, I am happy to announce that after careful consultation and planning the new factoring announced by the Late Minister of Finance last year will be launch 1st 2010. This will provide another ease for small and medium sized businesses who do business with the Government but have to wait extended periods of time for settlement of payments. This should vastly improve cash flows.
Waiver of Interest and Penalty Programme
The Waiver of Interest and Penalty Programme which was implemented during the years 2008 and 2009 was readily embraced by employers and self-employed persons, as it was viewed as an opportunity to liquidate their indebtedness to the various revenue collection agencies, namely the National Insurance, Land Tax, Income Tax and Value Added Tax Departments.
This programme which provided for a waiver of 50% interest and penalty in certain circumstances came to an end in December 2009. However, subsequent to the expiration of the programme, all revenue collection agencies received several calls with respect to whether the Government would again consider extending the programme due to the financial difficulties that some businesses were experiencing because of the economic crisis.
As a consequence of these requests, I have decided to extend the facility for another year effective December 1, 2010. This will apply to VAT, Inland Revenue and the National Insurance Scheme.
Improvements at the Bridgetown Port & Town and Country Development Planning Office
Mr. Speaker, recommendations coming out of a study on Strengthening Trade Logistics and Trade Facilitation done in February, 2009 indicated the need for reducing time taken in Barbados for trade processes and suggested that this can be achieved by implementing an Electronic Single Window. Barbados’ trade occurs primarily through sea cargo and the average dwell time of nine (9) days is poor when compared to international performance. While Customs declarations are submitted on-line, all remaining steps are paper-based.
Further strengthening of Customs in Barbados is required in light of a continuous implementation program for all customs treatment and procedures as defined in the Revised Kyoto Convention. This will require some modification of the Customs operation.
The report further recommended that a Centralized Customs Examination Facility is needed, in order to improve Customs processing time and simplify procedures at the sea port and the airport. To implement this, a central container examination facility at the sea port is being considered as a public/private partnership. A similar facility at the airport was recommended. These two projects are included as studies within the Barbados Competitiveness Project.
Regarding the Seaport container handling cost, the consultants noted that these are relatively high in comparison with a selected sample of tariffs for other ports and suggested that Barbados Port Inc. should seek ways of reducing current charges bringing them in line with International and regional bench marks. It was felt that the information system enhancement to optimize seaport operation needs to be considered in the Barbados Port Inc. investment plans.
With respect to the Town and Country Development Planning Office, the late Prime Minister, the Honorable David Thompson instructed that this department should be strengthened to allow it to expeditiously respond to the demands of developers and home owners and thereby facilitate the economic and developmental needs of Barbados. As part of this process, an institutional strengthening program for the department is being undertaken, and the outcome of this study will be followed up, using the IADB-funded Barbados Competitiveness Program as a modality for this activity.
Enhancing Business Performance
Mr. Speaker,
It is my intention to offer a Tax Credit to any business organization which over the next three years beginning income year 2011, is able to increase its profits and at the same time increase employment by at least 10% of its work force. The increased employment must be maintained for 3 years in order to obtain the tax credit. The Tax credit will be equal to 10% of the cost of wages of the firm and will be applied against taxes payable. The firm will be able to carry forward the credit for 3 years if it does not have the taxable income to utilize the credit in the year the expenditure is incurred.
Furthermore Mr. Speaker, employment, productivity and innovation must be at the epi-centre of our national strategy for growth and development of Barbados within the 21st century. Creativity and Innovation and a will by entrepreneurs to invest effort and resources towards creating greater value-added will ensure enterprise growth and subsequently have a positive impact on national productivity.
In recognition of this I intend to introduce a Productivity and Innovation Tax Credit, which, will focus on businesses placing emphasis on investment in the following areas:
Process innovation – that leads to the development of a new manufacturing process
Product innovation – the development of improved products and services
Organisational innovation which establishes a new venture for improved productivity, example new internal communication system, a new accounting system
Service innovation – the development of new services for local or international markets
Mr. Speaker, the innovation must be successfully introduced into the market thereby creating commercial value manifested in sales, increased productivity and organisational efficiency.
The qualifying business would be allowed to claim 25% of its expenditure as a tax credit for the qualifying year i.e., the year in which the expenditure was incurred, for any of the four (4) qualifying areas stated above.
This credit will be applied against taxable income and where there is a loss the enterprise would be allowed to carry forward the credit to subsequent years for up to a three year period.
The National Productivity Council will be the agency responsible for certifying that a business has met the eligibility criteria for the award.
Small and Micro Business
Small business is very important to the economy of Barbados, the programme for small business is an integrated programme which will provide only beneficial but also technical benefits as well.
It is well known that small businesses can encounter challenges in accessing working capital as well as training for the development of their activities. In this current economic crisis these businesses, through the creation and maintenance of employment for workers, continue to play a key role in entrepreneurship and economic stability in Barbados. There is a need to extend the scope of Government’s assistance to this group to allow for working capital needs of small businesses which are stuck by undercapitalization. The Government has a duty to ensure that these businesses have a chance to survive. Fund Access has been in business for some thirteen (13) years, providing funding for businesses. It knows the typical risks, reasons for business failure or success and provides technical assistance and training for such persons.
I propose to allocate the sum of $1.5 million to Fund Access to empower it to facilitate the needs of the small business sector through additional technical assistance for existing and new businesses, training and working capital. I wish to note that there are many examples of companies using funds from Fund Access which are able to survive the difficult economic environment and Fund Access has also only recently provided technical assistance out of its normal budget to benefit businesses which suffered from the ravages of Tropical Storm Tomas.
E-commerce is the way of the future and the Internet many business opportunities especially for small businesses. The Government will therefore mandate that part of its subvention to the Small Business Association be used for the provision of website development and ecommerce services to members.
Education
Mr. Speaker human capital is the bedrock of our development in Barbados and as a result we need to continue to make timely and necessary investment in our youth to ensure that Barbados has a cadre of qualified, productive and creative members of the work force.
In keeping with Government’s pledge to introduce a Text Book Scheme for primary schools, the Ministry of Education commenced the phased procurement and distribution of text books to all primary schools. The goal is to provide text books in the core subject areas of the national curriculum. To date, all public primary schools have been issued with text books to cover the curriculum in Language Arts and Mathematics. The process is ongoing with text books in the area of science being distributed in the current phase.
However, the Ministry is aware that approximately 10% of the primary school population experience serious challenges in acquiring the requisite texts and workbooks which parents are required to purchase for their wards. To ensure that this vulnerable group is not disadvantaged in anyway, we are proposing to make available to the Ministry of Education a sum of $500 000 to cater to the needs of those most in need of assistance. The Ministry, in collaboration with the primary schools, will institute a mechanism to effectively identify and administer this new system.
Mr. Speaker, the Ministry of Education and Human Resource Development reaffirms its commitment to investing in human resource development through education and training at all levels of the education system, especially at the tertiary level. During the last five years, the Ministry of Education and Human Resource Development has contributed significantly to the financing of University education at UWI. The cost of providing education at the UWI has risen from Bds$114.7 million in 2004/2005 to $142.8 million in 2009/2010. At the same time, the UWI has continued to engage in various corporate partnerships to accomplish its agenda to modernize the Campus and to make its course offerings more relevant to the needs of Government and the corporate sector in the region.
However, it must be emphasized that measures to ensure improved efficiencies in the management of the financial resources allocated to the UWI must be maintained. Over the past few years it has been found that an unacceptable number of students are entering the UWI without fully matriculating. The consequential effect of this is that several of these are taking longer to complete their course of study with some spending as much as an extra two years within the campus. Part of this problem has stemmed from the unavailability of spaces at the Barbados Community College and the Samuel Jackman Prescod Polytechnic. The end result has been an increase in the overall cost to government since on average it is less costly to educate a student at these two institutions than it is for the UWI.
As a result in consultation with the Ministry of Education it has been decided that additional resources will have to be provided to the BCC and the SJPP over the next two years to assist them in building out capacity so as to offer more spaces to willing and qualified young Barbadians. This process will start with the preparation of the empty building which BCC recently acquired from Cable Wireless at Howells Cross Road.
Government will also push ahead with plans for and expended six form school system and a campus in the north of the island for the SJPP. Once these development come on stream our expectation will be that a properly articulated protocol will be developed between the UWI and BCC and SJPP for a two and two system to be implemented that allows students to spend two years at one of these institutions and the final two years at the UWI.
In keeping with these expected developments it will be the policy of the MEHR that all students entering the UWI in 2011 should be fully matriculated and hence will complete their undergraduate degrees in 3 years of full time study or 4 years part time. Students who fail to complete their course of study in the stipulated time will not be eligible for continued Government support except in extenuating circumstances.
Energy
The Government has expanded the Sustainable Energy Framework of Barbados Project launched last year to include and additional US$1 million in grant funding from the Global Environmental Facility (GEF) for the implementation of renewable energy demonstration projects. This programme will install 3000 power meters, 1,500 compact fluorescent lamps, 28 photo-voltaic systems and one micro wind system in selected households and other places.
In order to ensure the sustainability of these initiatives the Government of Barbados decided to take two-fold approach with the IDB as follows:
· The development of a Programmatic Policy Based Loan in the sum of US$45 million for the Energy Sector as an instrument to catalyse the regulatory, policy and legislative measures required to promote sustainable energy. The loan agreement has already been signed by me and proceeds of the loan are expected to be disbursed during this month of November this year. It is to be noted the Government of Barbados has already met the conditions for the disbursement of the loan.
· A US 10 million dollar Smart Fund Initiative
While the Energy Policy Based Loan focuses on regulatory and policy actions required to promote energy, the US 10 million dollar Smart Fund Loan is a package of financial instruments and technical assistance to address the main market failures that prevent the country from adopting renewable energy and energy efficiency.
Although many renewable energy and energy efficiency technologies are commercially viable their uptake in Barbados is low mainly due to limited access to capital, limited and uncompetitive renewable energy and energy efficiency equipment supply and lack of information.
The Smart Fund will help to overcome these problems by providing the finance to overcome the access to capital problem, funding campaigns to develop a critical mass of users of some of the most promising technologies and develop a new market equilibrium in which these technologies become the norm.
Social Welfare
The Welfare Department is of the view that with the increase in rates just two years ago and the decrease in the number of children on the roll, there is not an acute need for an increase now in the welfare grant for children. However bearing in mind the proposed increase in the VAT, rising cost of living and the concerns regarding nutritional needs and given the link between childhood obesity and chronic diseases in adulthood, a small increase could be useful.
The Current Rate is $35.00 per week and I propose to increase the grant to $45.00 per week at an additional cost of $982,800 per-annum.
The Welfare Department has noted an increase in Food Voucher requests, with the amount expended at November 11, 2010 being $155,525.00. Last financial year total expenditure on food vouchers was $206,456.87. Given the indication that the recession will be protracted and also bearing in mind the consequential effects of Disasters such as Hurricane Tomas, resulting in increased requests for food vouchers, an additional provision of $200,000 for Food Vouchers for the financial year should assist in this regard.
Mr. Speaker, the National Insurance Contributory and non-contributory pensions will be increased with effect from January 3, 2011 in accordance with Section 25A of the National Insurance & Social Security Act Cap 47. The minimum contributory pension will be increased to $163 per week from $155 and the non-contributory pension will be increased to $133 per week from $127.
Conclusions
Mr. Speaker the Sir, measures which I have outlined here today and the accompanying programme for productive sector stimulation have been specially designed with two purposes in mind. One, to restore financial stability to the public accounts while taking a bold imaginative step towards going for growth.
I am sure that immediately following this presentation, critics will argue that some of these measures are too harsh. I will be the first to concede that the increased taxes cause some level of discomfort at all levels. However Sir to my mind, the alternatives are ten times more painful. Our mission and mandate as Barbadians must be to protect the ship of state and be our brothers keeping. I take no pleasure in threading this path, but I take comfort in knowing that through these initiatives we will save hundreds of jobs and keep several families together.
The members of the opposition no doubt will seek to play the blame game. That is opposition politics. But governments are elected to govern and govern we shall. When circumstances threaten our collective livelihoods and our quality of life we must act to defend it.
This Government came to office with lofty intentions which we still hold fast to. But circumstances would have it that we were greeted with the worse economic recession in human history. Many people the world over from the USA to the UK, Cameroon to CARICOM, have suffered devastating losses and face grim and uncertain futures. But they have stood UP and faced the music.
We Barbados must now do the same. Mr. Speaker Sir I have great confidence in the spirit and will of the people of Barbados to weather this economic storm and emerge more determined and hungry for success than ever before. Why do I believe this Sir? Because we are Barbadians. We bow, we bend, but we never, never, never break.
It is our place to think we are great because we are great. Indeed Sir in the words of Marianne Williamson :
Our deepest fear is not that we are inadequate. Our deepest fear is that we are powerful beyond measure. We ask ourselves, Who am I to be brilliant, gorgeous, talented, fabulous? Actually, who are you not to be? We were born to make manifest the glory of God that is within us. And as we let our own light shine, we unconsciously give other people permission to do the same.
Mr. Speaker I urge all Barbadians, take this moment in time as an opportunity to renew our faith in God and in our abilities to achieve great things as a people. Let 270,000 lights shine so that we may illuminate new pathways to progress for the next generation to follow.
I thank you Sir
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