How Will Mia’s Budget Affect You

Early last week Mia and her team met in Parliament to discuss Barbados’ 2018 ‘mini-budget’. This ‘mini-budget’ came around the same time that a normal budget would be released by government each year, but due to the timing of the elections Mia’s campaign may not have had sufficient time to draft the entire budget hence the term, ‘mini-budget’.
There are various Pros and Cons to Barbados’ new Matriarch’s budget, this article will break down the major changes and how Bajans will be affected, based on their current income and spending habits.
Changes effective July 1, 2018:
The repeal of the highly controversial National Social Responsibility Levy (NSRL) which was an extra ten percent tax on imported goods to the island as well as on domestically manufactured items. Since its implementation in September 2016, the tax has significantly increased the costs of most items purchased by locals in Barbados and is the main reason why the Central Bank reported that inflation doubled in Barbados in 2017. 100% of Bajans will benefit from this change as the prices of most everyday foreign goods and locally made ones should be noticeably lower very soon. This change will likely be a key driver of economic growth as businesses will invest more money into foreign goods as they know they are getting more bang for their buck.
The ever present road tax will now be abolished and replaced with a Fuel Tax that will increase the cost of fuel by forty cents per litre on petrol and diesel and five cents per litre on kerosene. Many Bajans have already displayed their outrage over this new measure as the average motorist who spends more than $70 a week on fuel will now have to pay over the course of the year far more in Fuel tax than they would have paid on the flat fee tax of $400 in road tax a year. The table below illustrates estimated additional costs for most motorists.

Since the Road Tax was $400, anyone putting more than $70 a week in their car or a thousand litres a year will have to pay more money to use the nation’s roads. Many motorists will be affected but those with vehicles that are not very full-efficient and also all businesses who have to do a lot of travel to sell their goods/services will certainly be feeling their pockets burn the most. This measure could easily spur the growth of the electric car market in Barbados. Currently the Nissan Leaf is the only electric car available for sale with the Toyota Prius as a hybrid alternative, but look to see many more in car showrooms around the island very soon.

The introduction of a new tax bracket of forty percent will now be in place. Previously, when a Bajan works for a company, their first $25,000 of earnings for the year are tax free, any income above that is taxed at 16%, until they reach $60,000 when any income above that is taxed at 33.5%. The government has now introduced a third bracket, with any income over $75,000 being taxed at 40%. This new measure will not affect the majority of Bajans, only those in the middle to upper class will see an increase in their tax liability. It is expected to increase government revenue by $41 million a year.
Corporation tax is to increase from 25% to 30%, resulting in lower corporate profits and likely less dividends paid out to shareholders of local businesses. Those individuals owning stock of companies in Barbados and Barbados companies themselves will feel the impact of this. Government should bank an extra $57 million a year from this.
The introduction of a Room Levy on hotel rooms and apartment complexes, with A Class facilities paying $10USD per night and B Class facilities like family owned apartments for rent paying $2.50USD a night. We will likely see hotel prices in Barbados go up, as well as the prices for apartments for rent. Anybody that rents property to visitors will feel the impact of this tax either in the form of absorbing the tax and making $10USD less profit a night, or reduced number of bookings due to a price increase in their rooms. This tax could easily result in a reduction of tourism as tourists flock to other countries without as many taxes directly affecting them and hurt the Barbados economy on a whole.
For those of you who have recently hopped on the Airbnb train and have been making a little extra money by renting out a spare room or rooms in your house, do not fear, there is a new tax for you too! There will now be a 10% tax on all shared economy services like Airbnb, Homeaway and Expedia that will come straight out of your earnings through these sites.
After negotiations with the workers’ unions it has been agreed that all public servants will receive a 5% salary increase for the period April 1, 2018 to March 31, 2019. All those who are paid by the government for example teachers, firemen, postmen etc will see their wages increase by 5%.
The government will temporarily increase their contributions to the Welfare department as an effort to lower the levels of poverty faced by Bajans across the country. The unemployed and minimum income earners in the country will certainly benefit from the extra $5 million per year the government has promised to give to welfare recipients.

The undergraduate tuition fees for Bajan students at the University of the West Indies Cave Hill Campus will be waived commencing in September of 2018, all Barbadians hoping to pursue some form of higher education will greatly benefit, free tuition is expected to cost the government around $22 million a year.

From October 1st, Barbados residents will now be subject to VAT whenever they make online purchases. This may include buying items on Amazon or other e-commerce websites as well as possibly booking hotels or airplane tickets. This means that your next vacation just got 17.5% more expensive! That is the government’s plan as it categorizes online spending as ‘non-essential’ and takes up valuable amounts of the country’s foreign currency reserve which is already in dire stress.

Also commencing October 1st, an Airline Travel and Tourism Development tax will be implemented and will be paid by all airline passengers. Those flying outside of the Caribbean will have to come up with USD$70 to leave the airport. Passengers flying within the Caribbean will have to fork out USD$35. Mia’s team is hoping to generate an extra $95 million in revenue from this fee with $75 million of that going to BTMI and BTPI and the other $20 million to the Central Bank. Just like the addition of VAT to online spending, the government thinks that excessive travelling is non-essential spending and believes that if is that high of a priority for you, you will simply bear the increase in fees. These multiple $70USD fees could add up for companies that do business outside of the region and the $35 fee will still be noticeable to small businessmen who travel to neighboring islands to sell goods/services.

There will be a Trust Loan Program introduced within the next three months to grant loans of up to $5,000 for budding entrepreneurs who can present a good enough business plan and viable business model. Interest rates are expected to be around the same as Barbados Government Securities, and expected to cost the government about $10 million a year. This is an excellent program for the nation’s youth especially as the technology age has given individuals a plethora of resources to unlock entrepreneurial earning potential in various ways other than the traditional nine to five hustle.

Fixing the South Coast and Bridgetown sewage crisis continues to be one of the government’s main priorities and is expected to run them an additional $27 million to completely fix.

Some additional public service benefits are as follow:
$20 million worth of new Transport Board buses are expected to be bought with an additional $5 million to be spent in existing bus repairs. $15 million to purchase garbage trucks and tractors for the Sanitation Service Authority.
Potholes have been a huge topic of debate and the government has committed to spending $25 million over the next year on essential road repairs and de-bushing programs.

Expanding the Accident & Emergency Department of the Queen Elizabeth Hospital at a cost of approximately $10 million.

A $2 million investment in Smart Bridgetown; initiatives to make Barbados more technology savvy.

$2.5 million to fix the Supreme Court.
I am sure all Bajans are eager to hear what suggestions our new friends at the IMF have for our growth and prosperity going forward. It is likely that they will recommend our government owned businesses that are continuously making a loss to become privatized. It is clear that State Owned Enterprises are the reason for the government’s struggling as they account for more than 60% of the country’s outflows of cash. The only way to stop the budget bleeding is to privatize some of Barbados’ public services such as the transport board and other services.
Barbados lacks the fiscal institutions and laws necessary to control budget deficits and spending. Government should publish a balance of payments every year similar to how America does. It makes corruption, embezzlement and fraud significantly harder to commit. The documents should include a balance sheet with all of the country’s assets and liabilities as well as an income statement stating income and expenses. The financial statements should be public record, under the accrual method, meet international accounting standards and be independently audited by an external audit firm.
Overall the budget looks promising and signals a good roadmap to recovery for Barbados. Barbados’ statistics are not looking good currently as unemployment since last budget has increased about 1% while economic growth for the year is -1%( yes we have regressed instead of grown). Let’s all keep our fingers crossed and see if Mia’s plan works.

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