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Budget Speech 2011 – Pt 2


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Financial Statement and Budgetary Proposals for 2011 delivered by Minister of Finance and Economic Affairs Chris Sinckler in Parliament today – Part 2 of 3

Proposed Strategy to Reduce the Deficit in Line with the Medium Term Fiscal Strategy (MTFS)
The Government is working towards the attainment of the goals set out in the medium term fiscal strategy and it is the policy of the Government to regularly review the efficiency of Government’s expenditure programmes and seek where possible to remove wasteful spending, remove excess spending due to inefficient and uncoordinated/unshared procedures, reduce cost overruns and improve service delivery.
More specifically, Ministries are being required to review and re-prioritise their programmes to help reduce costs by removing programmes no longer needed or not seen as priority, by improving procedures to remove inefficiencies, and by sharing more resources and more procedures between programmes. Further, state-owned agencies have to improve their levels of efficiency and rely less on government subventions.
Specific strategies include :

Containing personal emoluments costs by allowing total growth to be the equivalent of the sum that would normally be paid as increments.  The Ministry of the Civil Service is conducting a staff rationalisation program with assistance from the IADB.  Assistance is also being given to the Chief Personnel Officer with respect to the re-structuring of the department and re-engineering of its various operational functions.  It is expected that this program would result in some savings in the area of personal emoluments;
Reducing the level of spending on goods and services through more and better use of improved technology, and better assessment of the absolute need for the items to be procured;
 Increasing the efficiency of procurement of goods and services through better sourcing and more astute, aggressive and efficient procurement.  This is also being done with technical assistance provided through an IADB  funded project;
Instituting cuts and caps on the transfers to the statutory boards, statutory corporations and government-owned companies, such as the, Transport Board, Barbados Agricultural and Development Marketing Corporation as well as the University of the West Indies;
Managing projects more proactively and on a timely basis throughout the project cycle and the use of monthly project review meetings with ministries and departments chaired by the Minister of Finance;
Designing of a borrowing package from the NIB to three statutory entities (UWI, Transport Board, BTA and Needhams Holdings ltd) to allow for financing of $110 million during the course of this financial for specific aspects of their programme. This will address the level of current transfers made to these entities from government but allow for greater flexibility to do more to stimulate the economy.  Servicing of this debt will however be provided for, where necessary in the Consolidated Fund; 
  Restricting supplementaries to emergency cases only and the introduction of virement from this financial year to allow Ministries/Departments which have savings in one area but would like to use the funds in another area, to move those funds without having to return to Parliament for approval via a supplementary.

This strategy is expected to result in the following financial performance for 2011 – 2012:
A revised deficit of $461.9 million or 5.2% of GDP at market prices of $8,804.0 million based on performance for the first quarter of the year.  This is slightly better than that of the MTFS of 5.6%.
1)     current revenue of $2,455.4 million, an increase of approximately $150.9 million or 6.6% over the actual out-turn for 2010/2011. 
2)     Total expenditure, inclusive of amortisation, of $3,361.7 million: a decrease of $514.8 million from the previous year’s figure of $3,876.6 million.
However, while we are projecting a deficit-to-GDP in keeping with the MTFS, we are still considered to be in a precarious situation.  Currently we are borrowing to finance the total amount of annual debt service.  This is unsustainable as we need to get to a position where we borrow to finance only the repayment of the principal and make a contribution to our capital budget.  With this as the focus for the future it will be necessary to reduce the deficit including amortisation to within $500 million as a matter of urgency.
As you are aware Mr. Speaker, in May of this year the ratings agency Moody’s issued a downgrade of Barbados’s debt from Baa2 to Baa3 with a negative outlook. This sparked a whirlwind of commentary in Barbados – quite a bit misinformed – but none the less disconcerting for people of Barbados.
As the mighty United States found out just recently, no country likes to be downgraded by any of these agencies as it reflects poorly on the fundamentals of your economy and could make life extremely difficult for economic planners in both the public and private sectors.
In this vein, we in the Government treated the Moody’s downgrade with the level of seriousness it deserves and with a resolve to work even harder to repair the weaknesses in our economy.
That notwithstanding Sir, it would be remiss of me if, for the benefit of a proper contexualisation of the national discourse, I did not decompose or better put expose the issue of ratings downgrades in Barbados for all to see.
In an early 2008 press release Moody’s issued the following assessment of Barbados:
“Moody’s Investors Service has placed Barbados’ government bond ratings on review for possible downgrade to assess the credit impact of further deterioration in the country’s debt metrics in the coming years. The review affects both the A3 local currency and the Baa2 foreign currency government bond ratings. The A1 foreign currency country ceiling for bonds, and the Baa2 foreign currency country ceiling for deposits are also underreview.”
“Barbados’ key debt metrics have been deteriorating in recent years and are now at levels that compare poorly with other countries in the Baa rating category,” said Moody’s Vice President – Senior Analyst Alessandra Alecci. “Such deterioration was observed prior to the onset of the global crisis, suggesting structural elements as part of the cause.”
One of those elements is a persistent increase in government expenditures, including those off-budget, as revenues have remained at roughly the same level in terms of GDP. Since Moody’s last rating action in 2000, Barbados’ public debt stock has more than doubled, and relative to revenues, it has increased significantly”.
And let me for the record substantiate the observations of Mr. Alecci by giving some empirical evidence on the debt in Barbados.

Financial yr.

Debt Outstanding

Debt-GDP Ratio

1999-2000

2,885.1

58.2

2000-2001

3,225.6

63.6

2001-2002

3,784.5

74.1

2002-2003

3,975.6

76.5

2003-2004

4,211.8

78.1

2004-2005

4,472.1

79.4

2005-2006

4,742,6

78.9

2006-2007

4,911.0

77.0

2007-2008

5,762.1

84.5

 
It gets worse Mr. Speaker, between 2008 when we assumed the reins of Government and 2010 this Government was called upon to bring close to a billion dollars in off-budget spending and debt by the last Government, and to which Mr. Alecci of Moody’s referred, on to the books further exploding an already untenable debt situation.
This was not done by any amateur Finance Minister on a frolic of his own. This was done by the great economist from St. Peter who, when warned about these practices said to us, “Ignore the ratings agencies.” The same great economist who when the last Moody’s downgrade came then jumped in front the camera and declared that I should be fired as Minister of Finance.  It was a classic attempt to divert attention from himself.  But now the facts are laid bare.
If anybody in Barbados is responsible for the downgrade of Barbados by Moody’s it is the Rt. Hon. Member for St. Peter.
But where Moody’s failed to act Standard and Poor’s did not; and again for the record I alert the country to the fact that between 1999 and 2007, in the so-called “great years” of the last administration S & P downgraded Barbados no less than three times, moving the country from a high of AA to A- 1999 and all the way down to BBB+ by 2005 with a negative outlook.
Mr. Speaker I say no more on this matter – for now.
What all of this says to us Sir, is that we have serious work to do as a country and the sooner we get to it the better for all of us. In that vein and bearing in mind the objectives of consolidating our fiscal accounts, sustaining our economic recovery and preparing for a restructuring of Barbados’ economy over the medium term, I commend the following budgetary proposals and other initiatives to this Honourable House.
 
Taxation
Mr. Speaker as you are aware, this is the year for revaluation of properties in Barbados and so Barbadians would have received their demand notices showing the new valuation on which their land tax will be based.  We are however cognisant of the difficulties being experienced by many persons in this recessionary period and are of the opinion that this rise in property values and the associated rise in taxes payable will have a major impact on the ability of the tax payers to meet their obligations in a timely manner.
I therefore propose that effective this tax year 2011/2012 the existing tax bands should be adjusted while maintaining the current rate structure, to allow parity to be maintained with aggregate taxes payable for tax year 2010-2011.  These will be done as follows:
For residential properties:

At present the first $150,000 is exempted from tax.  I propose to raise that to $190,000.
The rate of 0.1% is applied up to the next $400,000 in value.  I propose to raise this to $500,000.
Up to $1,250,000 in value a rate of 0.45% will be applied. This moves up from $1,000,000, and
A rate of 0.75% will be applied to all properties in excess of $1,250,000.  This is an increase of value of $250,000 up from the previous value of 1,000,000.

This reduction in land tax payable for the 2011 – 2012 tax year is not expected to have an impact on taxes collected by the Commissioner of Land Tax when compared to 2010/2011, but will allow land and home owners to forgo increases in taxes for the next period.
Mr. Speaker, there are currently four categories of properties which enjoy rebates and/or exemptions from taxes: those used for hotels, agriculture, villas and by pensioners. There has been some concern by the Commissioner of Land Tax that this process has been abused.   To reduce, if not eliminate, the incidence of abuse of these concessions, it is recommended that all tax rebates should be based on the tax demanded and not on the site or improved values of the properties. 
It is also recommended that approved manufacturers who can certify exports to a value of $100,000 or more in any one calendar year will also be afforded these rebates.
Additionally any company, certified by the Division of Energy to be engaged in the production of solar energy and/or the manufacturing sector of solar energy equipment, will also be added to this category.
I therefore propose that with effect from next tax year a rebate of no more than 50% will be granted on the land tax demanded for that year, for properties which can prove that they have engaged directly in the manufacturing activity and those which have been certified by the Division of Energy to be engaged in the production/manufacture of solar energy.  
To further strengthen the management of the collection process, all rebates and exemptions will be tied to generation of income and therefore a tax clearance from IRD and/or VAT would be required to access the rebate.  This is also a requirement of the Auditor General.
In addition to the measures outlined above the following amendments will be made with respect to the granting of rebates and exemptions:
a)     all rebates shall be granted within the year in which the tax is due. This is critical for revenue recording and forecasting cash flows in light of Government’s adoption of the accrual basis of accounting
b)      discounts shall be applied ONLY at the time of payment hence the Demand Notice will highlight the gross amount payable and not the amount net of the discount available if payment is made before a specified date.
With respect to the hotel sector we have been made aware of the challenges which some of our properties face regarding the payment of their land taxes within the existing period for the discount.  Land tax bills are now issued in August with the discounted payment periods being in the third quarter of Government’s fiscal year.  While this change in issue date works well for the smoothening of Government’s cash flows with its cash requirements, this runs concurrent with a period in the industry when cash flow is at its lowest.  The Commissioner of Land Tax has indicated that it would be possible to issue tax bills to this sector at such time as to allow hotels to enjoy the discounts offered in the same manner as all other tax payers. 
Therefore with effect from tax year 2011/2012 it is proposed that registrants of the hotel sector and stand alone restaurants off property be allowed to pay their land tax bills during the last quarter of the fiscal year (January to March) without losing access to the discounted rate.   This will however have to be done within the context of an approved tourism property through an agreed tourism body.
This will result in a very small revenue loss if any to the Treasury due to an extended discount period for the hotel sector.
Mr. Speaker, currently the homeowner and businesses can benefit up to a maximum of $7,000 per annum by way of Income Tax deductions in respect of energy audits, renewable energy and energy efficiency retrofits.  They also benefit at the point of importation by way of a ministerial duty waiver – 20% on the importation of approved goods.  This is applicable to all persons to a limit of 50% of the investment over 5 years.  It is recommended that the current allowance be increased from $5,000 to $10,000 for individuals and $25,000 for registered small business.  In addition, it is recommended that this allowance be extended to lessees once it is proven that approval was granted by the owner of the property.
I therefore propose that with effect from the current tax year, the energy conservation and renewable energy deduction will be increased from $5,000 to $10,000 per year for individuals and $25,000 per year for registered small businesses.  I further propose to make this allowance available to lessees of properties once it is proven that approval was obtained from the owner of the property. 
Additionally, businesses whose filings with the Inland Revenue Department and VAT Division and whose compliance with NIS and Land Tax are up to date or who have in place arrangements to settle their arrears will be allowed to write-off 150 percent of conversion to alternate energy over a five (5) year period.
The result of this incentive will be a revenue loss to the Treasury of approximately $8.0 M, however it will be spread over multiple years and so the impact in any one year will be entirely manageable.
Mr. Speaker Sir, over the last year we have heard of many issues raised by the OECD with regard to peer reviews and exchange of information and Barbados being placed on a “grey list”.  The low level of filing by tax payers in Barbados also has been raised as an issue and one which we have to concede is a spot of bother for domestic tax authorities.
We therefore propose a set of additional measures to encourage all applicable Barbadians to get into the routine of filing their returns even if a refund is not due.
It is also proposed that effective tax year 2011 the late filing fee will be increased from one hundred dollars ($100) to five hundred dollars ($500).  This measure is not for revenue generation purposes but to increase the level of compliance with the Income Tax Act with respect to filing whether or not a tax refund is due.
Additionally, as is well known to this House and further afield, it has become almost folklore the stories of the non-filing of income tax and payment of national insurance and VAT by some among the professional class in Barbados. Indeed only recently the Prime Minister in a debate in this very House was moved to make and appeal to some among the professions and self-employed to make their contributions to the various state agencies as legally required. The Commissioner of Inland Revenue is already on record lamenting his utter frustration in getting compliance in these matters, and several international agencies and many of our key Double Taxation Treaty Partners have complained about the low level of tax filling and information available in Barbados.
It is a matter of the gravest concern to this government and our regulators, as it has the potential to cause Barbados to lose good standing internationally and face possible sanctions.  
Given this situation and the need to ensure that everybody not only makes their fair contribution to our national recovery efforts but most importantly that they bring their fillings up to date, I will shortly propose to Cabinet a series of measures designed to impose the severest penalties on the most egregious offenders for non-filling of income tax, and the payment of VAT in particular. When one considers the fact that between these two departments, the outstanding arrears amount to more than $600 million, the public will realise what an embarrassment this is for a country of Barbados’ standing.
The Inland Revenue Department has also noted that many individuals are seeking to reduce the amount of taxes payable on their employment income by using losses from other business ventures and incorporating these in other filings. This while practiced in all sectors, is particularly noticeable in the agricultural sector. 
I therefore propose, with effect from tax year 2011, that there will be a separation of business and employment income for computation of tax payable.  This requirement is similar to that which currently exists for residential and commercial rents.
 
High Net Worth Individuals
In 2009 the late Prime Minister in his budgetary presentation proposed to amend the Income Tax Act to reduce the effective rate of tax that an individual resident but not domiciled in Barbados would be required to pay on their foreign income. He also proposed that an individual domiciled in Barbados would be allowed to claim a foreign currency earnings credit in respect of his income earned outside of Barbados. Following a thorough review of the entire section in the Act dealing with this matter by a Special Committee including the Commissioner of Inland Revenue and the Permanent Secretary in the Ministry of Finance, I can inform the House that the changes are now ready and appropriate amendments will be finalised for its implementation effective income year 2012.

Waiver of Interest and Penalty (WIP) Programme
This programme was re-introduced recently with the purpose of assisting persons in arrears to government agencies to meet their obligations at a minimum cost.  The current programme which ends in December 2011 offers a 50% waiver of outstanding penalties and interest where taxpayers who join the programme are able to settle their liabilities within the stipulated time frame, while remaining current on their obligations.   As an added incentive to encourage even greater participation it is therefore proposed that with immediate effect the following conditional amnesty will be offered under the Waiver of Interest and Penalty programme offered by the National Insurance Department, the Value Added Tax Division and the Inland Revenue Department:
“A 100% waiver of interest and penalty on outstanding tax due to the departments if payment of eighty percent (80%) of the amount due is made in full by a one-off cash payment.  This incentive will remain in place until the close of the current calendar year, December 31, 2011.”
This conditional amnesty will also be available on computations of penalty and interest for all persons who have not filed personal income tax for any period prior to the calendar year 2007. The 5% late fee on taxes payable will be waived under this amnesty, however the flat fee of $500.00 will be charged for each year of filing. 
Sir, when we look at the arrears on the books of the Inland Revenue Department, this initiative will be at a loss to the Treasury of approximately $59 million on arrears of $252 million.  It is however felt that this is for the good of the economy on a whole in order to ensure that our filing of tax information is improved and be at a more acceptable level.

Fees:
In 2007 the paramedics, emergency medical technicians and emergency medical dispatchers were brought under the Paramedical Professional Act.  The professional registration fees for this category of professionals were captured in the increase in fees payable under the Professions, Trade and Business Registration Act, Cap 373. This caused them to pay an inordinately high fee vis-à-vis their salary scale. To correct this imbalance I now propose that this category of professionals will be treated in the same manner as nurses and therefore pay the fee applicable to that category of medical worker.

Amendments to the Occupational Pensions Benefit Regulations
Mr. Speaker, prior to the proclamation of the Occupational Pensions Benefit Regulation on April 1, 2011, pensions which were registered under Part VII 25(4) of the Income Tax Regulations, 1969 were provided with tax free status as follows:
“not more than 25 percent of the benefits payable may be commuted and paid in the form of a tax free lump sum…”
To ensure that there were no conflicts between the Income Tax Regulations and those of the Occupational Pensions Benefit Regulations, the Income Tax Regulations were repealed.
Section 29(5) of the Occupational Pensions Benefit Regulations, while making provision for the commutation of pension benefits on retirement, does not however make specific provision for a similar tax free basis for the payment in the form of a lump sum.  This was inadvertently omitted.
Since the proclamation of the Occupational Pensions Benefit Regulations a number of issues and concerns have been raised that need to be addressed.  These are currently being reviewed by the Financial Services Commission (FSC) and assisted by a Pension Advisory Committee drawn from the private and public sector. 
Notwithstanding this, it is opined that all matters that relate to Income Taxes should be consolidated under the Income Tax Act.  During the current financial year the Ministry of Finance will be undertaking, for the Cabinet’s attention, a complete review of the domestic tax regime in Barbados out of which is expected to come a number of recommendations on the way forward to further improving our domestic tax system.
Nonetheless, we believe that current and prospective pensioners should not be disadvantaged during this review process and therefore I have determined that the provision permitting the tax free status of the 25% lump sum payment to persons on reaching retirement age will be re-instated in the Income Tax Regulations.  The effective date of this re-instatement will be the date of the coming into operation of the Occupational Pensions Benefit Regulations, February 15, 2011.
Additionally, a number of concerns have also been raised with respect to the onerous nature of the current fee structure as set out in the Occupational Pensions Benefit Regulations.  The Financial Services Commission has therefore reviewed these and has recommended that they be revised, taking into consideration the size of the pension plan based on its membership.  I agree with the fee structure that has been recommended by the FSC, which is set out in Schedule I to this document and propose that the new structure shall take effect from September 1, 2011. 
Finally, Mr. Speaker with respect to the Occupational Pensions Benefit Regulations: The Occupational Pension Benefits Act, 2003 permits members of a Defined Contribution pension plan to purchase an annuity at retirement.  Given the high cost associated with annuity purchases, it was determined that another option should be made available to ensure that retirees receive maximum benefits at reduced cost.
I therefore propose that the Occupational Pensions Benefit Regulations be amended to permit a drawdown account to be used as a variation on the form of pension payment available to a member upon retirement from a defined contribution plan.  The draw-down account will permit controlled withdrawal of pension benefits over a period of time within a defined contribution pension plan.
Tourism
I now turn to the tourism sector.  Mr. Speaker it has been brought to my attention that in order for local businesses that offer attractions and tours to travelers in the cruise industry to contract with the cruise ships, it was deemed necessary by the cruise liners for them to obtain global insurance coverage.  These cruise ships have also mandated which insurers can be used by the local businesses, all of which are based outside of Barbados.  This results in significant taxes being paid by businesses on the remittances to these insurers. 
A representation has been made by the sector to this Ministry for a reduction or elimination of these taxes which would ultimately enable companies to offer their product at a reduced rate.
I have acceded to their request and propose that effective income year 2012 these taxes will be removed.
Furthermore, Mr. Speaker, concerns have been raised over an anomaly in the treatment of input tax paid in respect of goods purchased locally by hotels offering time share properties. Under the Tourism Development Act, the construction and furnishing of timeshare properties and the construction of a hotel are included under the definition of Tourism Projects. One of the benefits to which such Approved Tourism Projects is entitled is the “refund of customs duty paid by the holder of a permit where the holder satisfies the Comptroller of Customs that the building materials and supplies purchased for the tourism project have been purchased in Barbados in accordance with the terms of the permit”.
It should be noted that the definition of “Customs Duty” under the Tourism Development Act includes import duty, environmental levy, excise tax and VAT. 
Under the VAT Act, the sale of real property or the lease of real property for a term of at least 25 years is exempt from VAT. Suppliers of exempt products or services are not entitled to claim refunds of input VAT. Consequently, an entity which operates a timeshare property is not allowed to claim a refund of the input taxes since the time share activity constitutes a transfer of real property.
The sale of time share properties generates foreign exchange on which VAT is paid. Therefore, if the sale of a time share by an Approved Tourism Enterprise is zero-rated, then such a classification would entitle the enterprise to recover all VAT on inputs without reducing the competitiveness of the enterprise.
The Ministry of Finance will take the necessary action to have the VAT Act amended accordingly.
International Business Sector:
As you heard, the international business sector continues to be of critical importance to the economic fortunes of the Barbados economy and certainly to our recovery efforts.
In order to ensure that Barbados remains relevant in this highly competitive international market, our IB policy makers and practitioners are constantly looking for ways to improve facilitation efficiencies and develop new products to assist in attracting even more players to our jurisdiction.
In this regard Government has agreed with the Barbados International Business Association (BIBA) that in the coming months a laser-like focus should be put on pursuing the following:

Legislation:
Reviewing and bringing to the Parliament of Barbados:-

Amendments to the Society with Restricted Liabilities Act to effect mergers between these entities;
Enactment of Foundation Legislation which would put Barbados on competitive footing with Panama, Malta and the Bahamas;
Amendments to the Companies Act and if necessary the Securities Act;
Amendments to International Corporate and Trust Providers Companies Acts and the finalisation and laying of the accompanying regulations;
Amendments to the Companies Act to allow for incorporation of companies with Chinese names along with an English equivalent in order to attract more businesses from Asia;
Enactment of Private Trust Company Legislation.

 
In addition to these the Ministry of Finance has invited the Attorney General’s Office to work alongside the International Business Unit to devise a multi-year licensing application to allow International Business Companies desirous of procuring a multi-year license in one go with an appropriate discount to do so. We hope that this will be made available from next year. Finally, while Barbados will never be able to compete on price levels in the fee structure set for the International Business sector with many other jurisdictions, it is still necessary to ensure that we remain as competitive as possible. In this regard, Government through the appropriate agencies and in conjunction with BIBA will review the entire rate structure in the sector, with a view to looking at areas that might be in need of intervention. This will be done to ensure that Barbados as a jurisdiction remains relevant while not unduly affecting our revenue intake.

Agriculture
Mr. Speaker the agriculture sector.  Given the current high cost of energy, there is a need for assistance to the poultry and animal farmers in keeping their livestock housing well lit and at the appropriate temperatures. 
I therefore propose that, with immediate effect, a rebate of up to $5,000.00 be provided to farmers who retrofit these structures with the use of solar energy.
This will result in a revenue loss to the Treasury of approximately $4.35 million to be bourn over multiple years.
The Medium Term Development Strategy (MTDS) of Barbados (2010 – 2014) recognises that the current external environment has undoubtedly posed new challenges to an already vulnerable agriculture sector. These challenges are evident in a high import food bill, high global energy costs, rapid climate change and the decrease in agriculture exports by some major food suppliers. In 2010, prices of locally grown fruits and vegetables generally remained stable with minor fluctuations in the cost of these commodities. With regard to food imports and foreign exchange spending, the 2010 fruit and vegetable import bill (including nuts and root crops) was $41.4 million, a 15% increase over 2009. Of this, an estimated $21.8 million can be suitably substituted.
With this in mind Mr. Speaker, Government has acceded to the requests of the Fruit and Vegetable Growers Association for the establishment of an Organic Matter programme. This programme will see the provision of financial assistance for the purchase of three mulch compositors to give fruit and vegetable farmers access to cost effective equipment to be used for the production and application of disease and weed-free organic matter. 
The equipment will be provided as part of the Tractor Cultivation Scheme under the Ministry of Agriculture, Food, Fisheries and Water Resources for on-lending to farmers at a ‘pepper-corn’ rate inclusive of insurance of the equipment. The estimated cost for one Mulch Compositor is US$55,000 or Bds$110,000 while the cost of one row mulcher or mulch spreader is US$50,000 or BDS$100,000.
I therefore propose to provide the Ministry of Agriculture, Food, Fisheries and Water Resources with financial resources to facilitate the purchase of the recommended three compositors and three row mulchers.  We will further accede to the provision of two transplanters and two mulch lifters that accompany these very critical pieces of equipment. I equally review on a case by case basis applications from registered farmers for partial waivers of duties on similar equipment.
The costs to the Government of Barbados for this initial programme will be in region of US$215,000 or BDS$430,000.
 
Agricultural Development Fund
The Agricultural Development Fund (ADF) was established in Barbados by an Act of Parliament on December 12, 2001 for the improved development of agriculture in the country. The financial resources of the Fund are needed to finance projects and programmes that are designed for the development of agriculture. 
The source of income to the ADF was set out in legislation as (i.) revenue from the bound rates on agricultural products and (ii.) income recovered from the heavily indebted plantations by the Barbados Agricultural Credit Trust (BACT).  Over the last couple of years there has been no income contributed to the ADF from the BACT.  Discussions are currently underway with the Minister of Agriculture with a view to the recapitalisation of the ADF. 
Since October 01, 2005, the interest rate applicable to loans under the Agricultural Development Fund has been set at 6.5%. I therefore propose that once the Fund has been recapitalised, interest rates will be reduced to 5% over the next three years.
This is not expected to have a direct impact on the resources of the Consolidated Fund.
 
Manufacturing
The Government of Barbados is seeking to increase the use of other energy sources as an alternative to the use of fossil fuels.  It is therefore imperative that incentives are given to encourage greater use of solar power which is available abundantly given our climatic conditions.  Currently duty free concessions are offered to the hotel and manufacturing sector on the importation of electric water heaters.  I propose that effective January 1, 2012 these concessions will be discontinued.  This discontinuance should in addition, reduce the amount of foreign exchange required by the Central Bank of Barbados to facilitate such purchases.
The discontinuance of these concessions will result in a small saving to the treasury.
 
Mr. Speaker, in recent times this country has been producing some highly skilled persons at the Samuel Jackman Prescod Polytechnic in the area of computer system building and customisation.  However, the development and sustaining of a profession in this area has been difficult since the importation of computer systems in a box have been tax exempt but the importation of parts for assembly in Barbados have attracted import duties and VAT.  This is tantamount to the exportation of jobs to countries which assemble and ship computers to Barbados.
In order to correct this imbalance effective 1st September 2011, all parts imported into the country for the purpose of assembly of personal computers will be free of all import duties and VAT. This initiative seeks to provide an opportunity for these skilled young persons to become entrepreneurs in their chosen field.
Mr. Speaker Sir, this will have only a very marginal impact on the revenues of the Treasury.
 
The International Securities Market
Mr. Speaker I will now look at the securities market.   From as far back as 1991, it was envisioned that the way forward for the development of the securities market was the establishment of an international trading floor for the listing and trading of offshore products.  The Board of Governors, of what was at that time, the Securities Exchange of Barbados amended its By-Laws to establish an “Exempt Trading Floor (ETF) for the trading of “exempt securities”
The International Securities Market (ISM) has the potential of creating a number of benefits for the country and the International Business Community, further solidifying Barbados as an international business destination.  Though long in coming, the establishment of the International Securities Market is well on its way to becoming a reality with the completion of a Business Plan and a draft Memorandum of Understanding for consideration by the Ministry of Finance.  I will therefore, in the very near future, be approaching Cabinet for its support of this initiative.
Dematerialisation of Government Paper
It has always been envisioned that in addition to the primary market for the trading of Government paper and other securities that there would be introduced initiatives for the promotion of a secondary market to provide additional investment options to potential investors.
At present the process for trading of government paper is very cumbersome which means that once an investor purchases any type of government instrument it is more often than not held for the entire period until maturity.  This does not provide for a vibrant secondary market and limits the opportunity for investors to optimise the returns on their funds. Discussions have already commenced between the main stakeholders to make this dematerialisation a reality.
 
Therefore with effect from January 1, 2012 sale and trading in all Government Paper will be dematerialised.
 
Prospectus Requirements for Small and Medium Sized Enterprises (SMEs).
Mr. Speaker Sir, it has been brought to the Ministry’s attention that the existing prospectus requirements under the Companies Act may be somewhat onerous for SMEs wishing to raise capital in the market and eventually list on the Junior Market (JM) of the Barbados Stock Exchange (BSE).
Only recently in the United Kingdom, the Financial Secretary of the Treasury introduced two deregulatory amendments based on the EU Prospectus Directives.  These amendments meant that fewer small issuers are caught by the prospectus regime thus lifting a significant number of SMEs outside the obligation to issue a prospectus thereby making access to equity finance more efficient for SMEs and saving them a significant amount of pounds sterling a year.
Representation has been made by the Management of the Stock Exchange for a similar amendment to the prospectus requirements for local SMEs.  I therefore propose that with effect from January 1, 2012, SMEs wishing to access equity through an issue of shares shall under the following conditions be exempted from publishing a prospectus;
1)     Issues shall be no more than $5 million Barbados dollars;
2)     Issues shall be made to no more than 500 persons;
3)     The issuing company must be listed on the Barbados Stock Exchange.

Social Welfare and Development:
HOUSING
Mr. Speaker, as you are no doubt aware, it is part of this government’s stated policy on housing as contained in the Throne Speech, that the National Housing Corporation (NHC) initiates a transfer of the terrace units in its rental portfolio for those persons who were tenants of the NHC Estates for longer than 20 years up to 2008.
To date 2161 persons have qualified under this programme of which 1951 have accepted the offer and benefitted. However, as was the case with a previous programme for sale of the said units and for which deposits and even full payments were received, the vast majority of the tenants have been unable to receive conveyances for the properties due to a number of challenges.  While most of these challenges, vesting, changing of asbestos roofs, construction of parting walls etc, are well on the way to being solved, the issue of the vast number of illegal extensions attached to these units has proved a major stumbling block to the issuance of certificates of compliance by the Chief Town Planner.
Following an extensive set of meetings and discussions between Housing Officials, the Office of the Town Planner, the Cabinet Committee on Infrastructure, and lawyers from across the government, the Prime Minister and the Minister responsible for Town Planning has instructed the Ministry of Housing and Lands, working in conjunction with the Office of Chief Parliamentary Counsel, to prepare “special purpose legislation” with an appropriate Validation Order and Schedule in respect of those extensions now in breach of the Town Planning Regulations across NHC housing estates.
This legislation should reach this House in a matter of months and will in our view bring closure to this very difficult situation. It should be noted Mr. Speaker that no extensions started after September 1st2011 will be eligible for this programme and will therefore have to seek full permission from the Chief Town Planner.
I am also advised to notify this House that on February 17th 2011, the Cabinet of Barbados agreed to a formal extension of the twenty year programme. This means that any resident having been a tenant of the NHC in any of its rental estates under the original list of estates, and who meet the eligibility criteria, will now be able to benefit from the programme once they reach the twenty year qualification time.
 
Energy costs mitigation assistance
Mr. Speaker Sir, the increasingly high cost of fuel which is contributing to the burgeoning cost of electricity, has been a major source of concern to all Barbadians especially the unemployed indigent, pensioners, and members of the disabled community who are clients of the Welfare Department.  It is in times like these when we have to be mindful of the impact of these things on the most vulnerable among us.
To this extent, and notwithstanding our difficult fiscal situation, I propose to offer this fiscal year some level of relief to these persons by way of a one-off “energy grant”.  This grant funding will be provided through the Welfare Department and targeted towards the most vulnerable groups such as the elderly, disabled and the unemployed indigent. Persons who qualify but who are unable to physically make it to the Department should direct their requests through their respective Constituency Council.
This initiative will commence October 1, 2011 and will be to a maximum of $5 million.
 
The New Economy:
Mr. Speaker it has now become common place for many commentators in Barbados to speak expansively on the creation of a new economy in Barbados. This discourse takes many shapes with suggestions ranging from a downsizing of government and a shift towards more private enterprise intervention, to propositions for whole new economic sectors to be created within the country.
Indeed, the debate has only recently shifted and intensified around such concepts as new industrialisation thrusts, innovation, entrepreneurship expansion, and even a realignment of international strategic economic linkages from the “old west” to the newly emerging east and south economies.
If there is but one common denominator running through all of these suggestions it must be the reality of the need for a paradigm shift in traditional notions of economic capital formation, management and distribution.
While it is true that these discussions only seem to rare their heads when the domestic economy is in recession, cold hard realities dictate that Government and all of its partners make haste to begin the process of shaping the new Barbados economy.
In this context the concept of newness is not used to mean the jettison of existing economic pillars but rather the addition of new areas of potential and actual economic activity which would work not only to add greater value to the country’s GDP, but provide employment opportunities, while rebalancing its centres of dependency.
Mindful of these objectives, constrained by our resource limitations, but desirous of pushing forward, your Government has taken the policy decision that it will initiate the process of building out new potential areas of sectoral economic activities in the short to medium term.
Our strategic moves in this regard will be built around three critical objectives:

Increasing Barbados’ GDP growth over the next 20 years through strategic investments in differentiating existing economic sectors and building out of new ones in such areas as alternative energy, cultural industries, logistics and sports and health tourism that are driven by the earning of foreign exchange;
Creating new employment opportunities through building an expanded domestic entrepreneurial base consisting of a network of properly funded and equipped small businesses, and;
Shifting Barbados’ over-reliance on the advanced economies and towards linkages with emerging economies such as India, Brazil and China.

In recognition of these broad objectives for economic enhancement, I will shortly propose to the Cabinet the undertaking of a strategic sectoral reform and creation initiative to be undertaken by a joint team of internal and external businesses, economic and financial practitioners to produce for Government an implementable blue print to triple Barbados’ GDP value added over the next 15 years.
This work will be conducted in close collaboration with and under the guidance of the Social Partnership whose members have all declared their desire to engage a bold reform agenda across public, private and civil society sectors in Barbados in order to revitalise the Barbados economy and further deepen our extensive social development network. More details of this will follow shortly.
But even as we prepare ourselves for the completion and implementation of that major piece of work, we should not let pass any opportunity to move ahead with strategic investments in areas where considerable work is already underway and we know results can be garnered in short order.
In this vein, permit me to address initiatives in three of the following areas: Motor Sports, Alternative Energy and the Entertainment, Recording and Performing Arts Industry.
 
Motor Sports
Motor Sports today have become an extremely popular spectator sport in Barbados. Indeed, over the past 20 years or so, Barbados has distinguished itself as a hub for regional race meets and a potential destination for international racing events. With this clearly in view, the sport also provides very exciting prospects for the further development of sports tourism in Barbados targeting not only the regional but also the international market. 
Additionally, it is my belief that motor sports can also provide serious professional and job opportunities for several young people in Barbados studying auto mechanics and electronics. 
Mindful of all these opportunities, and as part of Government’s programme to diversify its economic sectors to assist in further GDP development, we have decided to partner with authorities in the motor racing sector to set out a programme for the further development of the sport in Barbados.
To this end, Government will shortly approve an agreement to lease the Bushy Park Facility to the Barbados Rally Club to facilitate a full upgrade of the race track and adjoining facilities to international racing standards. Resources for this upgrade work are expected to come in part from the International Racing Federation (FIA). It is my understanding that Barbados is already the first country to have taken advantage of the FIA Institute’s grant for facility development funding to improve race track facilities.
As such, the Ministry of Finance will give favourably consider an appropriate package of tax and other concessions to facilitate a successful building of the facility.
The completion of this facility will elevate Barbados by having the newest Category 3 Circuit and Kart Facility in the Western hemisphere, truly putting us on the world stage in terms of motor sport.
In addition, with effect from September 01, 2011, I also propose that all sporting vehicles, equipment and gear temporarily imported for the sole purpose of competitive activities will be exempted from VAT.
 
Alternative Energy:
The economy of Barbados continues to be severely impacted by high oil prices.  The average price of crude oil on the international market for this year is $95.00 a barrel and analysts project that the price will continue to remain at this level for the duration of the summer.  Indeed the harsh reality is that the days of low oil prices are over. What does this mean for us in Barbados?  Let me remind you of the cold facts.
The domestic demand for oil is about 10,000 barrels per day.  Since we produce less than 1000 barrels per day, we must import more than 9000 barrels of oil per day.  The cost of the oil imports for 2009 was US$233.51 million representing 6% of GDP, a level comparable to government expenditure on education.
Almost all of the electricity generated by the electric utility is fossil fuel based, predominantly with fuel oil and the remainder with diesel fuel.  Power generation represents the main use of the petroleum products in the country (50%), followed by the transport sector (33%).
The importation of petroleum products therefore represents a significant expenditure and drain on Barbados’ foreign exchange reserves with a significant negative impact on direct production costs and therefore on the competitiveness of the Barbadian economy.
In an effort to ease the burden on residential consumers, the Government subsidised the cost of electricity in the sum of US$18 million in 2007/2008.  This occurred due to the Government preventing the full impact of the increase in the fuel clause adjustment due to the increase in the price of fuel oil used for the generation of electricity.  Similarly the Barbados National Oil Co. Ltd. accumulated losses in excess of US$80 million due to the Government not passing on the increase in the price of oil to consumers.  Unfortunately, due to the prevailing international economic climate and its impact on the Barbadian economy, the Government is simply not in a position to subsidise the cost of these products for any sustained period.  The cost to the Government of nearly BDS$200 million in seeking to shield consumers from these price increases was significant.  The Barbados National Oil Co. Ltd. almost became technically insolvent in the process and is still seeking to recover these losses.
It is on this basis that the Government is seeking to implement a paradigm shift in the move to renewable energy and energy efficiency within the context of the establishment of a green economy.  This initiative is imperative in view of the vulnerability of the economy to the volatility of oil prices.
In last year’s statement I alerted the country to the fact that Government had signed off on a US$45 million loan to facilitate the design and implementation of its new sustainable energy framework that would tackle the issue of effective alternative energy interventions across the economy.
I am happy to report that work on that is now at an advanced stage, with both the demand side conservation framework almost ready to be rolled out through the $10 million Smart Energy Fund, and on the supply side with the policy framework for the Sustainable Energy Investment Programme.
Indeed Mr. Speaker, we have made such progress that we have already agreed with the Inter-American Development Bank (IDB) for Barbados to negotiate a second energy Policy Based Loan (PBL) of US$75 million to execute the preparation of renewable and energy efficiency policies through the necessary legislation.
The Government recognises that in an effort to facilitate the promotion of renewable energy and energy efficiency, the necessary enabling environment must be in place.  In this regard within the next few weeks, draft renewable energy and energy efficiency policies will be submitted to the Cabinet along with proposals for the amendment of the relevant legislation.  It is the Government’s intention to have draft legislation in respect of the renewable energy policy within the next few months to facilitate the generation of electricity by renewable energy systems and the sale of electricity to the grid.
This comprehensive programme will create an institutional, policy and operational framework that will set the appropriate incentives to generate substantial energy savings, reduce the cost of electricity to households and businesses and contribute to a reduction of oil imports and hence liberate funds for other purposes.  It is projected that Barbados will be able to reduce oil imports cumulative costs over the next twenty years from US$2.648 billion to US$1.978 billion.
Indeed Sir, as a symbol to Government’s commitment to this process, some government agencies and Ministries have already gone ahead and retrofitted their buildings with solar energy generating mechanisms. This has cut their energy bills by as much as 40% in some cases.
And today I would wish to announce that as a further demonstration of our seriousness in this regard, that the Ministry of Finance has agreed to work with the Clerk of Parliament to identify available resources to retrofit this Parliament with sufficient alternative solar energy generation capacity as to cut its current $1 million a year electricity bill by at least 50 % per year. I am advised by the Clerk that preliminary estimates indicate that such an investment is not likely to exceed $200,000.
 
The Entertainment, Recording and Performing Arts Industry.
Mr. Speaker, few can deny that the last few years of constrained economic conditions have given us cause to reflect on the fact that when all else fails it is our people on whom we must rely. The strength and tenacity of the Barbadian people especially under pressure would give even the faintest of hearts the encouragement to continue to work for the development of this country. 
This is especially so when we reflect on the fact that in just these past weeks we have recognised, witnessed and celebrated both the class and genius of some outstanding citizens of this country.
The celebration of the 75th birthday of our lone living National Hero the Right Excellent Sir Garfield Sobers gave us cause to acknowledge the greatness of his achievements at the global level. The celebrated return of our multi-award winning Culinary Champion Team, and latterly, Rihanna’s triumphant and spectacular home performance at the Kensington Oval, all served to remind us that smallness is not a barrier to the attainment of global prominence when talent abounds.
Of course, Mr. Speaker while Rihanna and Sir Gary and our Master Chefs are global and regional icons, we are equally proud as a nation of the thousands of Barbadians who use their creative genius to enhance our human condition and increasingly, in the last few decades, to earn a living for themselves their families and even for their country.
Successive governments have recognised that the creative economy ought to be one of the pillars on which our future economic growth must be premised. And while there have been gains – and noticeable ones- if we are to ensure that this sector is truly to be regarded as one of the mainstream economic sectors in Barbados we must address in a coherent manner some of the structural barriers confronted by the creative economy.
It is for this reason that the Division of Culture has worked so painstakingly on preparation of the draft Cultural Industries Bill which we are happy to announce is now ready. My understanding is that consultations with the relevant stakeholders will take place shortly before the Bill is debated in Parliament towards the end of this calendar year. 
It is envisaged that an entire suite of incentives and concessions will be attached to this Bill that we believe will act to trigger a fundamental transformation of the cultural sector.   Such transformation should lay the ground work for Barbados to finally move from being a net importer to becoming a net exporter of cultural services to the World.
This intention notwithstanding, it cannot be denied that a clear anomaly exists where those within the traditional private sector who have access to capital, do not readily invest in this area as they are not familiar with how returns are made from such investments. Equally, many of our cultural workers in whom creativity abounds have no access to money.  While an abundance of money may not always be required to create, it is definitely needed for the promotion, marketing and distribution of what it is that has been created and this Mr. Speaker, is the case whether we are dealing with music, art, theatre, dance or culinary arts.
Indeed, Mr. Speaker, the difficulties faced by our cultural workers are not very different from those persons in our small hotel sector or our manufacturing or agricultural classes. However, persons in these sectors all benefit from structured institutional and financial support through the various statutory entities or mechanisms in a manner that gives some level of certainty, if not total comfort and transparency.
If nothing else, the recent Rihanna production, and the progressive success of a now growing list of internationally contracted cultural artistes from Barbados should serve as wake-up call for policy makers to get cracking with the growth, development and promotion of this aspect of the cultural industries.
Clearly Sir, the time has come for us to not only talk the talk but walk the walk as well.
Accordingly, Mr. Speaker, this Government will work with our cultural workers, across disciplines to establish a public/private sector mechanism whose focus will be to promote, market and distribute the products and services of our cultural workers.  It is hoped that after the appropriate consultations with all stakeholders, which I suggest should begin in short order under the auspices of the Ministries of Culture, Tourism and the Ministry of Finance (Investment Division), the mechanism will be put in motion in the shortest possible timeframe.
Further, Mr. Speaker, given the diffidence of our commercial banking sector to finance enterprises in the creative economy, especially as it relates to working capital, the Government of Barbados will provide by way of a government backed guarantee, a facility to provide for the borrowing of $50 million dollars in amounts of $10 million every year for the next five years starting in 2012 to support this mechanism. These resources will go directly to support the promotional, marketing and distribution efforts outside of Barbados of Barbadian musicians, artists, designers and chefs.  Further details will be enunciated at a later date.
As an adjunct to this and in support especially of our musicians and recording studios, the Ministry of Finance will undertake on a case by case basis to support requests for partial waivers of duties on some equipment required to upgrade music studios across the island. This will be facilitated in collaboration with the Ministry of Culture and the Small Business Association.
Mr. Speaker, what I have outlined amounts to a quantum leap forward in the way in which government – any government – has dealt with this sector in the last fifty years. Perhaps, some may say it is a little late in coming but it is a start.
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