THE NEW GOVERNMENT'S BUDGET

The budget was almost four months late. Finally, Prime Minister Dean Barrow read the first budget of his United Democratic Party government (2008-2013) at a Special Sitting of the House of Representatives, under the caption, Realizing the Possibilities. What most Belizeans want to know is, what’s in the $825 million budget for them?

In a nearly two-hour long presentation of 40 pages, Prime Minister Barrow, who is also the Minister of Finance, outlined a number of measures to be effected during the fiscal year. They include the removal of General Sales Tax (GST) from some basic food items, including powdered milk, cooking oil, chicken Vienna sausages, corned beef, coffee and tea; and the removal of GST from doctor bills, as well as some over-the-counter medicines, including anti-retroviral medication for HIV patients.

“In addition to no new taxes on the Belizean people in this budget, we are, of course, actually providing positive relief, especially to the poor,” said Barrow. “We will be lowering or removing tax on a number of basic items and services.”

Barrow also highlighted a new food subsidy, a new program for single mothers, education grants, import duty exemptions to temper the shrinkage in tourism arrivals, a new surcharge to increase public revenues from Belizean crude, and possibly cheaper, Belizean oil at the pumps and butane for your stoves.

“In order to help to alleviate the increased financial burden on the poor brought on by the sharp rise in food prices, we have allocated the sum of $2 million for a food subsidy program aimed at the poorest of the poor,” said Prime Minister Dean Barrow. “This program - the operational parameters of which are being worked out - will be funded by a soft loan from the proceeds of the sale of petroleum imported from Venezuela under the PetroCaribe accord.”

The Prime Minister highlighted the allocation of over $3 million for education grants for first-year high school students, and $2 million to maintain the supply of textbooks to primary school students under the Free Textbook Program initiated last year by the former administration.


OIL $$$ AND LOCAL PRODUCTON

In the public domain, oil and oil revenues have been the most hotly debated issue, and Barrow made several references to Government’s strategy, working in tandem with private sector initiatives, in his budget speech.

“With the discovery and extraction of crude oil in Belize, several entrepreneurs have expressed an interest in establishing micro-refineries to process and blend the locally produced crude oil into refined gasoline, kerosene, and diesel oil for the local market,” said the Prime Minister.

“Two local companies have invested substantially in refining equipment and are poised to produce a refined diesel and gasoline for the local market. Together these two producers project that they can supply more than 50% of the local market within the next few years, but starting almost immediately, at prices significantly lower than what we pay now.”

Due to World Trade Organization and CARICOM obligations, however, the excise taxes on locally produced products cannot be more favorable than the taxes applied to similar products which are imported into Belize.

He said that excise taxes would be established for locally produced diesel, gasoline, kerosene and jet fuel, to replace the import duty and environmental tax now paid on imported fuel products.


“Notwithstanding the excise tax, I repeat that it is expected that the final price to the consumer for the locally produced products will be lower than the imported, since international freight, insurance and handling costs will be eliminated,” said Barrow.

Detailing more potential developments in Belize’s energy sector, the Prime Minister said that Belize Natural Energy (BNE) is developing a facility for the supply of locally-produced butane gas far cheaper than the imported butane.

“Their butane should be commercially available by September of this year and they expect to meet the needs of at least 30% of the local market,” Barrow announced in his speech.

As cost of living continues to escalate, the resounding public concerns are not only over high pump prices, but the fact that public revenues from oil – at a time when per barrel costs continue at sustained highs – have not yielded enough benefits for the Government and people of Belize.

While Barrow said that oil prices will remain high in the foreseeable future, he commented that, “It is important that the country, as both an oil exporter and an oil importer, offset the high prices we pay for the refined products by obtaining a larger share of the export earnings.”


EASE UP ON THE GST

“In preparing its estimates of revenue, the Government is proposing several measures aimed at providing some relief to those whose lives are most badly affected by the sharp rise in food and fuel prices,” said Prime Minister Barrow. “This was an issue that arose several times during the budget consultation process and several suggestions were made to reduce GST [General Sales Tax] and or Import Duties on an expanded list of basic food items.”

Barrow tabled the following proposals: (1) the removal of GST, by applying a zero rate on a wide range of over-the-counter and prescription medicines and medical supplies including analgesics, cough and cold preparations, diagnostic testing kits for glucose in the blood and urine, insulin and insulin syringes, oral re-hydration salts and solutions, dialysis fluids, oxygen, and anti-retroviral drugs; and (2) the classification of medical, dental, hospital, optical and paramedical services as exempt items for the purposes of the GST.

“The effect of this is to ensure that the providers of such services will no longer be adding GST to their invoices for the services they provide,” said Barrow. “This is a first step towards the zero-rating of medical services - a step that the government proposes to take after consultation with the medical service providers to ensure that the benefits of zero-rating will be passed on to consumers through lower costs for medical services.”


THE GREEN REVOLUTION

At the center of the country’s food security strategy are those who produce food for your tables, and Barrow’s first budget was drafted with them, too, in mind. The sector has been one of the most hard-hit by escalating prices, which have sent the prices of fertilizers and agro-chemicals – not to mention fuel - through the roof. This has had a domino effect on prices on the Belizean market – translating to higher costs to families for feeding themselves and their children.

Barrow also referred to a new agricultural push – what he dubbed as “the second coming of Belize’s Green Revolution.”

“To help government to define appropriate policy responses,” said Prime Minister Barrow, “we have established a National Commodities Commission to advise the Government on the development of a detailed national strategy to take advantage of opportunities that have arisen out of the global increase in food prices.

“This work is being done on the basis of the recognition that the rise in food prices presents a historic opportunity for farmers to increase production, including for export, with the end result of increasing their income and the country’s foreign exchange earnings.”

Immediate support from the Government was identified as follows: the removal of revenue replacement duty from fertilizers; the removal of customs duties from animal feed concentrate; and the provision of import duty exemptions for agricultural machinery and implements, particularly for small farmers seeking to expand production; as well as the provision, later on, of a significant line of credit for agricultural expansion.


MUSA’S GHOSTS

“Firstly, the public debt [now at 2.2 billion] has never been higher, and the servicing of that debt became such an impossible burden that the former administration…the country is now unable to access external commercial sources of finance…

“Secondly, economic growth has slowed dramatically in the last few years, clearly demonstrating the extent to which the country’s earlier performance, the occasion for much self praise by the then Prime Minister and his Svengali, had in fact been propped up by the unsustainable borrowing…

“Thirdly, our ability to raise revenue and to collect taxes has been greatly constrained by special arrangements and dubious legal structures (including secret agreements) that have seen particularly rich business enterprises exempted from paying their fair share of taxes. Exhibit one is, of course, the BTL scenario which has caused the new government far too much time, energy and expense to try to set right.

“Fourthly, the provision of a number of tax holidays and arrangements to guarantee particular rates of return in order to notionally stimulate private sector investment has turned out rather to be a device for the imposition of a double whammy on the public: even as the favored few have been allowed to deprive the people of much needed revenue, they have also raised their prices to consumers.”

On the expenditure side, Barrow pointed to questionable pre-election spending by the former administration.

Barrow pointed to “…the new Housing Assistance Program, funded by a grant from the Government Venezuela under which some $18 million was spent in the six weeks immediately before the elections, and without the approval of the National Assembly as required by the Finance and Audit (Reform) Act.”

(Government has given no indication as to how many houses were built or renovated in those six weeks.)

Weighing heavily on the public purse is also the judgment against the Government of $8.8 million in foreign arbitration won by NEWCO and the $40 million diverted by Musa’s administration from the public coffers in the months before the election – what Mr. Barrow dubbed “reckless spending and criminal diversion of funds.”

“The hangover from 2007 is, of course, a reality with which we now have to deal. Consequently, in 2008, GDP growth is already being affected by lower output of sugarcane and papaya, the two crops most severely affected by last year’s hurricane. The closure of the Williamson sewing factory, lower electricity output and a decrease in hotel and restaurant activities stemming from a sharp fall in cruise ship arrivals, are also taking their toll,” said Prime Minister Barrow.


GENERAL ECONOMIC SLOWDOWN

He noted that GDP grew by only 0.6% in the first quarter, with exports being down by 1.1%, and imports up by 19.5% driven by Commercial Free Zone activity and increased expenditure on a range of items including fuel, telecommunication equipment, construction materials, vehicles and electricity.

Barrow said that the gap created by the downturn in earnings from exports and the expansion in imports was worsened by a substantial outward movement of funds in the form of repatriation of profits by the Belize Bank to the tune of almost $60 million.

The quantity and the quality of sugarcane have declined in the current crop year, papaya output between January and April 2008 was almost 50% lower than in the comparable period of 2007, citrus deliveries for the 2007/2008 crop year up to April declined by 7%, with decreases in orange and grapefruit deliveries of 8% and 4.5%, respectively. Juice production has declined by 6%. But banana export volume rose by 74.0% to 27,194 metric tons while earnings were up by 92.2% to $23.5 million in the first four months of 2008 as compared with the same period last year, he reported.

The best news was from the petroleum sector, which showed impressive growth of 11%, with earnings increasing by 108%.

“These increases didn’t fully compensate for declines in other export commodities, however, and the trade deficit consequently has increased by 62.8% ($89.2mn) relative to the same period of 2007,” the Prime Minister said.

GDP growth is projected at only 2% this fiscal year.


FURTHER TAX MEASURES

Prime Minister Barrow said that in order to curb the contraband cigarette trade, the excise tax on the carton of 20 sticks of cigarettes would be reverted to the March 2008 figure of $12. He expressed the view that the reduction in excise tax would not necessarily cause an increase in cigarette consumption, but rather was intended to curb contraband.

He said that Government would continue consultations on taxation for the tourism sector. Meanwhile, Barrow pledged to lift import duties for small registered hoteliers seeking to expand and/or improve the quality of their facilities, as well as small tour operators wanting to import passenger vans for tourist transportation services.


SHARING THE 825-MILLION-DOLLAR PIE

Barrow’s first budget includes roughly $50 million more in recurrent spending and $38 million more in capital spending than Musa’s last – an increase of $90 million more in spending than his predecessor.

On the other side of the budget equation, we are looking at $96 million more in revenues and grants than last year’s figures.

“The proposed increase of $51.3 million [in recurrent expenditure] reflects the reality of increased costs faced by Government (which is also a major consumer of goods and services), as well as the need to make provisions for special programs in the areas of education, health and social development,” Prime Minister Barrow said.

Barrow said that the freeze on salary increments for public officers will be lifted.

“Government is proposing an allocation of $262.8 million for personal emoluments, reflecting an addition of $28.9 million, to provide for the filling of some critical need positions in health, education, and the security services, as well as to pay for the restoration of the salary increments frozen by the last administration for a period of one year in 2005,” said Barrow.

A total of $237.9 million has been programmed in the budget for goods and services “to provide for increased cost of fuel, rents, material and supplies, and other essential items.”

Also in the budget, said PM Barrow, is a brand new allocation of over $3.0 million to provide for education grants for first-year high school students on a needs basis; an increase of $1.5 million in scholarship grants to tertiary level students; a new allocation of $2.0 million to maintain the supply of textbooks to primary school students; an increase of $1.5 million in grants to the University of Belize; and an increase of $3.0 million to cover the full cost of basic primary health care under the National Health Insurance (NHI) Program in those areas in which NHI has already been rolled out.

According to the Prime Minister, “The Government has decided to delay the full rollout of NHI, pending the results of ongoing analysis of the costs and possible sources of revenue to meet those costs.”

Public debt is still a major budgetary constraint. This year, Government estimates that $108.9 million dollars will go towards meeting interest payments, with a further $63.9 million to meet amortization payments. Debt payments will total $172.8 million (20% of all Government’s receipts in revenues and grants) – that is despite the debt re-profiling undertaken by the former administration.

Barrow’s administration plans to increase capital spending from $137 million to $175 million - $78.7 million funded from the public purse, supplemented by external financing.

Major capital projects he highlighted include: $6.5 million toward the upgrading of the Placencia Road; $4 million for the completion of the Southern Highway; $5.3 million for the Belize City South Side Poverty Alleviation Project; $4.8 million for the rehabilitation of sugar feeder roads; $2 million for the temporary bridge structure at Kendall; $8 million in support to the banana and sugar industries under the European Union Programme; over $11.9 million dollars in aggregate to fund community projects under the Social Investment Fund, the Commonwealth Debt Initiative, and the Basic Needs Trust Fund; $6.5 million to complete the Health Reform Project; and $3 million to complete Enhancement of the Technical Vocational, Education and Training Project.

Other major allocations in the budget for special programs include: $1.0 million for a project to assist low income persons in getting proper titles to land through providing funding to pay for surveys; $2.0 million for housing improvements for low income persons; $1.7 million for maintenance of municipal streets and drains; $175,000 for a pilot project for skills training for single mothers; and $1 million for rural water systems.


REVIVING THE DFC

One major issue highlighted in the budget is credit to the small and medium sectors, and the revival of the Development Finance Corporation (DFC).

“There is now a critical and unsatisfied need for financing for small and medium enterprises and student loans, and the new Government has been discussing with the International Financial Institutions, the imperative of a revitalized and restructured DFC resuming small and medium sized credit and student lending,” Prime Minister Barrow said.

“The Caribbean Development Bank (CDB) has agreed, in principle, to a new loan of $25 million to the Government of Belize for the seeding of the new DFC. We expect our formal loan request to go to CDB’s board by October and for DFC to restart its lending operations by the end of the year,” he announced.


BARROW PROMISES MORE CONSULTATIONS

Prime Minister Barrow pointed out that the 2008/2009 fiscal year began seven weeks after the United Democratic Party (UDP) came to office. The past four months have been spent in wide public consultations.

The consultative process leading up to the budget presentation, said Barrow, was not a one-shot deal. He said that his administration would take all views into account as they secure a future for Belize.

The broader consultations on the proposed constitutional amendment bill has attracted far more public attention and sparked heated public discourse – and even two lawsuits against the Government. Barrow said he was taking the opportunity today to assure all those that attended public hearings that his government would be making changes to reflect the positions expressed, based on merit.

He said that he would scrap proposed amendments to Section 17 of the Belize Constitution: For sure we will take out that portion of the proposed amendments dealing with mineral rights that gives Government authority to turn over its title in oil to the oil company, said Barrow. “We are going to scrap that.”

He also said that they would not bring back the constitutional amendment bill for passage unless and until they have circulated the draft ordinary law for the recall mechanism for elected officials.


OTHER LEGISLATIVE BUSINESS

According to Barrow, the proposed oil revenue amendments will be circulated when he tables the Supplemental Petroleum Tax Bill. The Prime Minister plans to host a press conference Wednesday to detail important breakthroughs in the talks with oil industry stakeholders.

At today’s Sitting of the House, Prime Minister Barrow also presented the Customs and Excise Duties (Amendment) Bill 2008 and the Supreme Court of Judicature (Amendment) Bill 2008.

The Supreme Court of Judicature (Amendment) Bill was rushed through the House in today’s sitting. Barrow cited the need to have the bill immediately passed into law so that when a Magistrate’s Court makes an order for any entity to pay overdue taxes, there can be no question of that order being suspended by an appeal in the Supreme Court.

The law was sparked by the current dispute between the Government and Belize Telemedia Limited over millions in tax arrears.


DEBATE NEXT WEEK

The 2008/2009 budget would be retroactive to April 1, 2008, and would be for the year ending March 31, 2009.

The budget debate has been scheduled for Thursday, July 24, 2008. This gives the 31 members of Parliament 10 days to further study the contents.

The 90-day waiting period for the Belize Constitution (Sixth) Amendment Bill, from which Barrow has now scrapped two proposals – that for preventative detention and now the proposal for turning over mineral rights titles to investors - will also expire at that time.

(The Prime Minster’s budget proposals as gotten from the Amandala.)