Belize: Barrows its head in the sand!

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Posted: Tuesday, March 14, 2017. 9:01 a.m. CST.

By Richard Harrison: Prime Minister Dean Barrow read the annual public sector budget for 2017-18 yesterday, saying it expects to increase taxation revenue by 2.2% of GDP while reducing public sector spending by 1.0% of GDD and growing the GDP by 3.0 – 3.5%.

This budget estimates summary does nothing more than fill-in-the-blanks to express the minimum requirements that Belize Bond holders placed on the government as condition for the recent, unprecedented third restructuring of the so-called US$547 million 2034 SuperBond…which became necessary due to poor performance of the economy, on the edge of going broke.

There is nothing imaginative, creative nor innovative about this budget…..it seeks only to raise taxes to be able to meet loan obligationS by squeezing the poor and middle class some more….while continuing to protect the favored status quo and severely diminishing the competitiveness and productivity potential of the economy.

The approved budget estimate for GDP in 2016-17 was $3.728 billion, but the GDP is actually expected to turn out at only $3.52 billion. The estimate for the coming year is $3.684 billion, which is actually 4.66% above the expected out turn for 2016-17… and is fully 50% more than the 3.1% GDP growth the PM acknowledges he seeks for this year.

The approved budget estimate for revenues in 2016-17 was $1.0885 billion, but the revenues are actually expected to reach only $1.0785. The estimate for the coming year is $1.1868 billion….which is actually an increase of 10% (or $108.3 million) above the expected outturn for 2016-17…..$28.3 million above the $80 million increased taxation the PM acknowledges he seeks.

Download the Budget Speech by PM Barrow here: https://www.dropbox.com/sh/39fr4qvcnhnmkpq/AACd8I1H488ut8dA17tqifQMa/Budget%20Speech%202017%20-%20FINAL.pdf?dl=0

The approved budget estimate for expenditures in 2016-17 was $1.1511 billion, but the expenditures are actually expected to reach $1.2389 billion. The estimate for the coming year is $1.1801 billion, which is actually a 5% cut compared to expected out turn for 2016-17….and this is a $58.8 million cut, almost 100% more than the $30 million expenditure cuts the PM acknowledges he seeks. There will be hardships for public sector workers and less money to provide services….police vehicles and ambulances will be running out of fuel…or the expenses will again prove to be much larger than approved estimates…throwing a wrench in this fly-by-night plan.

These three indicators show that the PM actually needs higher GDP growth, much higher tax increase and deeper cuts than he actually acknowledges in his prose and poetry summary, in which he shows that he is willing to use creative accounting tactics to pull wool over the eyes of sheep.

While imports for 2015 were reported by the Statistical Institute of Belize at $2.0591 billion, imports for 2016 fell to $1.97 billion…..a drop of $89.1 million….the “taxes on international trade and transactions” or revenue from the Customs Tariff Law was estimated for 2016-17 at $308.7 million, but are actually expected to come in at only $174.7 million….fully $134 million below expectations….even with the big hike in taxes on fuel implemented shortly after the ruling UDP won the November general elections in 2015 to seal its third term in office. The hike in fuel prices hurts everyone, especially the productive sector….but importers are getting away with evading and/or avoiding taxes on international trade in a big way….and government does not plan to do much about it. The estimates for 2017-18 is still only at $204 million…which is only $30 million more than the expected outturn for 2016-17, but still far below the actual out turn of $249 million for 2015-16.

The government claims it seeks an additional 0.77 percent of GDP, or $28.37 million from increased Excise Tax on soft drinks, beer, cement and fuel. The importing contrabandistas of all these items will have a field day….Bowen and Bowen will be big losers, having to raise prices and cut costs across the board, while yielding market share to the already large contraband trade from Guatemala and Mexico. Fuel price hikes and increased cement costs makes for decreased competitiveness and productivity of the housing construction and productive sectors….destroying the two facets that are the only ones that can deliver a 4.66% GDP growth this year….absent new commercial oil finds.

G.O.B. also claims to seek an additional 0.3 percent of GDP, or BZ$11.05 million, from increasing departure fee for non-Belizeans to US$40. This figure would require an additional BZ$33.33 from every one of the 330,000 tourists visiting the country. Is it still reasonable, in the real world, to expect that increased cost will decrease potential demand and compromise growth? This increase unduly burdens the already uncompetitive overnight tourism sector that pays this tax, while letting the cruise sector, which pays only a head tax, off scot free.

The G.O.B. also claims that it will bump the Environmental Tax on imported goods, which is currently 2%, to 3%….with the objective or raising an additional 0.41 percent of GDP, or $15.1 million….which is 1% of only $1.51 billion of imports….hence 25% of the $2 billion imports will still be exempted from this tax….so the status quo who benefit from these exemptions is fully protected, but the poor and middle class who will pay this additional tax will carry this larger burden.

They also want to raise an additional 0.29 percent of GDP, or $10.7 million, from increased social fee on free zone cigarettes. This trade is not solely dependent of Belize government policy, but also on the policies that Mexico and Guatemala adapt….thus there can be no certainty that these estimates will be achieved.

The government also claims it will raise another 0.19 percent of GDP, or $7 million, from lowering the threshold on taxable electricity consumption from $200 to $100 per month. The many thousands of poor and middle-class families, small businesses and self-employed persons will have to bear this extra burden….when these are the ones that can together deliver the kind of GDP growth that the economy needs….if their burdens would be reduced…not increased.

As a part of the prose and poetry of the budget speech, statutory bodies will be expected to contribute 10% of their 2017-18 income to the consolidated fund….but there are no numbers to reflect this in the estimates. Perhaps this was thrown into the pot only as a go-to contingency measure since parts of the plan is expected to fail.

The written agreement with the Belize Bond holders call for specific annual growth rates of 3% this year, and 2% in the second and third years….as the primary indicator that would trigger a decision to submit Belize to IMF intervention. It is left to see if the bond holders will worry only about getting paid from increased taxes….or whether they will pull the trigger if the GDP growth is not achieved, even if they are getting paid.

This budget guarantees that the already heavily subsidized status quo will continue to ride free….while the poor and middle class are required to carry a larger burden.

The inflation in cost of living that these instruments will cause are going to take back all of the “pay raise” that teachers and civil servants fought so hard for….and will push private sector workers further out of pocket…bringing increased hardships to poor and middle-income families….small businesses…self-employed workers…and all the youth and children that depend on them. It is left to see how they will react to these tax increases.

Belizeans will need to keep a keen eye on the foreign reserves level, which needs to remain above 3 months of imports to maintain the peg to the US dollar at 2:1.

The bottom line of these budgetary decisions is that the Government of Belize is lazer focused ONLY on raising taxes to meet debt and expense obligations….there is no strategic objective to engineer fiscal reform to achieve greater competitiveness and productivity of the economy…..which are the ONLY two ways in which new wealth (i.e. real GDP growth) can be created.

If the past is any predictor of the future; Belize, as a direct result of these less-than-astute budgetary decisions…has BARROWED its head in the sand….and will very highly likely rush into the arms of the IMF shortly after the next budget speech presentation a year from now….short of a miracle or two happening to prevent that disastrous undesirable.

The views expressed in this article are those of the writer and not necessarily those of Breaking Belize News.

This article was written by Richard Harrison, Belizean investor in production and services businesses in Belize. He holds a Masters in Business Administration degree from Lancaster University.

 

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One Response to Belize: Barrows its head in the sand!

  1. Carlos Reply

    March 14, 2017 at 4:39 pm

    Meanwhile, in the USA, President Trump has reduced their national debt by billions of dollars in just 50 days since becoming president. Good for them. Bad for us, that we have a less-than-mediocre prime minister. Oh, but our PM knows how to enrich himself at the cost of Belizeans.

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