Submitted by Kemar J.D Stuart
On the Nation Sunday Sun March 9th, it highlights that the Minister in the Ministry of Finance Ryan Straughn and the marketing point is that this year’s 2025 budget will not introduce new taxes. This needs an Alternate View.
The high cost of living benefited government coffers significantly. To explain, high prices = higher the tax collected.
The inflation dividend was a key plank of the government’s high level of tax collection because taxation was charged as a percentage of price of a good or service.
The real pain will be felt on the expenditure cutting side as on the revenue side the current administration collected the highest levels of tax revenue ever in the financial and economic history of Barbados lodged between years of 2018-2025. This is supported by record levels of foreign borrowing
The IMF regards Barbados’ tax levels as high and therefore reforms suggested by BERT 2 focuses on expenditure reduction which is in direct contradiction of the record level expenditure presented in the estimates
While this is Barbados’ 2nd year of a ‘no taxes’ budget. Jamaica’s Prime Minister Andrew Holness announced its 9th consecutive year of “no new taxes”. Jamaica made this possible by constantly meeting a primary surplus target of 7.5% of their GDP. A primary surplus is government earnings minus government’s spend
In the 2017-2018 budget at least BBD$300 million in taxes were implemented which allowed the Stuart administration to record a primary surplus of 3% of $10 Billion BDS in GDP.
In 2018, under the BERT and the delivery of the mini budget, the Barbados economy was restructured by the Mottley administration to increase the primary surplus target from 3% or $300 Million to 6% or $600 Million which saw the imposition of taxes and expenditure cuts on Barbadians. This 6% target was met in 2018-2019 & 2019-2020 totalling a $1.2 Billion adjustment
Some of the following taxes were implemented
- Fuel tax
- 40% income tax bands
- Increase of 30% in corporation tax
- VAT online (Amazon)
- Health service contribution
- Departure tax
- Room rate levy
- Garbage and sewage tax
- Land tax increases
For FY 2020-2021 & 2021-2022 the GOB reduced its primary surplus target to -1% to accommodate COVID, however, no taxes were removed or lowered. The high inflation environnent allowed government to have higher financial reward.
Fitch rating agency reported in October 2024 indicating that the Barbados economy had little to no elbow room should any major disruptions occur. Despite Barbados achieving the primary surplus target agreed under the IMF BERT plan, Fitch reported that the distribution of taxes collected by the government of Barbados was led by a 12.7% increase in Personal Income taxes collected, a 7.1% increase in VAT collected and a 6.4% increase in import duties collected.
The brunt of government’s expenditure cuts were led by a massive 22% cut in overall capital expenditure while the recurrent cost of running the government still remains high and took only a 0.2% decrease in expenditure. Fitch expects that the government of Barbados will maintain this level of expenditure discipline as FY2024 and into 2025.
Based on Fitch’s projections it is fair to assume that as the agreed reforms in BERT & IMF RST progress, deep cuts to recurrent expenditure may follow. The major recurrent expenses for Barbados are wages & salaries, transfers to State owned Enterprises and provisions of goods and services. For example the shut down of CBC.
However Fitch indicated that further reforms will be more challenging due to more complicated issues and potential reduced buy-in from stakeholders as other concerns take priority.
The blogmaster invites you to join the discussion.