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BARBADOS

Presented by

FinancialStetement

dgetaryProposals

The Rt. Hon. Owen S. Arthur

Prime Minister and

Minister of Finance and

Economic Affairs

Tuesday, August 24,1999

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1

Introduction

Mr. Speaker, I am very conscious of the factthat this year's financial statement andbudgetary proposals are being presented to thisHonourable House on the eve of a new century.

In the ordinary scheme of things, the start ofa new century and in this case, a newmillennium, can be no. more than achronological milestone reflecting more a senseof continuity than a drastic departure from thepast.

There is however nothing ordinary aboutour present scheme of things. For the dawn ofthe new century will fortuitously coincide witha period of great change and transformation inthe environment within which we conduct oureconomic affairs that will be sufficiently differentand huge to ensure that the years immediatelyahead of us will constitute a transition from oneera to another.

These major changes that will bring aboutthe transition will involve the coming intoexistence of new arrangements for a CaribbeanSingle Market and Economy, and sweepingrhanpps in the trade and financial conditionsnnHpr which nations such as ours participate inthe global society.

In many respects, we have already beencaught up in that transition. It now remains forus to fully understand the dimensions of theeconomic and societal changes that we mustengineer during this period of transition torealise our objective of keeping our nation on asustainable development path.

This presentation, as will the others tofollow during the second term of thisadministration, is based on the premise that thefive years between 1999 and the year 2004 willrepresent a unique transition period in whichadjustments will have to be made to repositionour national economy in a radically differentregional and global economy.

I have said elsewhere that the year 2005represents a special date with destiny for allCaribbean economies.

What we cannot do is wait until that datehas arrived to begin to make the adjustmentsthat we know in advance will be required of us.

It is a simple matter. Sir of a stitch in timesaving nine.

The Strategic Perspective

I deal first with the strategic perspective thatinforms this presentation. One hundred yearshence, when economic historians come toreview our times, they will no doubt beinterested in how we viewed our presentcircumstances and have now conceive of theway ahead.

It will have to be reported that Barbadoscame to the end of the twentieth centuryexemplifying remarkable economic and socialfeatures.

This nation will come to the end of thiscentury enjoying the highest index of humandevelopment of all developing countries. Theend of this century will also find Barbados withthe lowest index of poverty to be found amongall nations in the developing world.

For developing countries, therefore thetwentieth century has been the Barbadiancentury.

These are fantastic and pricelessachievements of which every Barbadian can bejustly proud. But they have also established anawesome legacy to live up to and upon whichwe now must build.

Fromsuch an auspiciousbeginning in nationbuilding, it is not vainglorious for us now toreach forhigher economic and social attainment,especially incircumstances wherethechallengesthat will confront us offer a society such as oursmore opportunities than hindrances.

I begin therefore by offering this House astrategic perspective on the way immediatelyahead of us.

In the next five years, Sir, a deliberate,carefully focused and creatively implementedstrategy will have to be carried out to repositionthe Barbados economy in a new regionaleconomy.

In 1973, the founding fathers of our regionalintegration movement conceived of only alimited form of economic integration for ourregion.

They conceived of the Caribbean economyas a variation of a common market, withprovision for the free trade in goods, and theerection of a common protectionist tariff togoods imported from outside the region, butwith no provision for the unrestricted movementof capital, labour or the provision of services.

The Treaty of Chaguaramas, which calledtheir vision of integration into existence, also didnot provide Caribbean citizens with the rights toestablish businesses in any part of their region,as they saw fit.

Each Caribbean economy has therefore sinceevolved with its structure and its functioningexhibiting the effects of the constraints toregional economic development that wasimposed by that limited view of economicintegration in 1973.

However, in 1989 at Grand Anse, Grenada,

the Heads ot" government of the regiondetermined that the region should depart fromthe limited course of economic integration onwhich we embarked in 1973, and that theCaribbean economy should be constituted not asa limited common market, but now as a SingleMarket and a Single Economy.

I say, Sir, it was a bold vision, which, giventhis region's history of entrenched insularity,will be a difficult vision to achieve.

But in this era. Sir, when large developedeconomies are coming together to form hugetrade blocs, when, day by day, massivecompanies are merging to become companieswith annual turnovers many times that of ourcollective GDP in the Caribbean, we will surelytempt economic providence by acting out acharade that says that each of us, in our owncracking mould, can go it alone.

The survival and prosperity of the Caribbeaneconomies, singly and collectively, require thatwe make a success of that commitment to create

a Single Market and a Single Economy in ourregion.

The reconstitution of this Caribbean

economy as a Single Market and a SingleEconomy will" therefore be the first greatchallenge that will face us in the new century.

It will entail. Sir, the removal of allremaining tariff and non-tariff barriers to themovement of regional goods.

It will require that where there was noprovision in the past for the free movement ofcapital and people, these things should nowbecome part of our new economic reality.

It will mean that each Caribbean citizen

must have the right to be able to establishcompanies in any Caribbean nation of his or herchoice.

It will mean that we have to walk in

harmony in the development of our industrialand agricultural sectors; harmonise our taxationsystems, and our incentives; and supporteconomic activity in our region with a regionaltransportation policy which addresses longstanding deficiencies in the provision of air andsea transport.

It will also mean that we will have to clearlydefine and follow rules to govern our economicrelations with extra-regional countries, prescriberules to brin^ about free and fair competitionwithin our region and set up new mechanismsfor settling economic disputes in the Caribbean.

The formation of a Single Market andEconomy in the Caribbean will also mean thatwe will have to move in concert to develop ourmoney and our capital markets, and to create anenvironment within which transactions

involving the different national currencies can bemade more easily. In addition by incrementallypursuing relatively similar economic policiesdesigned to create conditions of regional internaland external stability at some time in the future,like the countries of the OECS and the EuropeanUnion, we will come to benefit from theoperation of a common Caribbean currency.

Mr. Speaker, the creation of such a SingleMarket and a Single Economy in the Caribbeanis not a pipe dream.

The Prime Minister of Barbados has been

entrusted with the responsibility of bringing thatSingle Market and Single Economy intoexistence. Initially the provisions to facilitate theformation of the Single Market and Economywere intended to have been put in place by1993. In 1996, after a Special EconomicConsultation on the matter, a revised timetablewas set to have the main elements in place by1999. I am pleased to be able to report to thisParliament that we are on schedule to meet thatobjective.

Our affairs in the Caribbean are governed bythe Treaty of Chaguaramas. Since that Treatydid not make provision for a Single Market anda Single Economy, an Inter-Governmental TaskForce was assembled to draw up for us protocolsby which to amend the Treaty to make theSingle Market and Single Economy a legalreality.

To date Caribbean Governments have

signed seven of the nine protocols required tocreate the legal framework within which a SingleMarket and a Single Economy can be formedand function.

Protocol 1, has amended the votingarrangements and the institutional organs ofCaricom to support a single economy.Protocol II has established a legal framework for

the free movement of capital, the provision ofservices and the rights of establishments forCaribbean investors throughout our Region.Protocol 111 elaborates a policy and frameworkfor regional industrial development. WhileProtocol IV spells out the elements of ourregional external trade policy. Protocol V coversagricultural development, while Protocol VI setsout the framework for the implementation of anew regional transportation policy.

To ensure, Mr. Speaker, that economic gainsare fairly distributed and that the costs ofparticipating in our regional economicintegration movement are minimised, recentlyGovernments signed Protocol VIIwhich lays outthe set of policies to protect speciallydisadvantaged countries, regions and industriesas the provisions of the Single Market takeeffect.

Recently, Mr. Speaker, the Inter-Governmental Task Force was convened in

Barbados to conclude a Protocol to set out the

rules to provide for fair competition within thisregion and another to settle upon a mechanismfor the settlement of regional economic disputes.These will be ready for signature when theHeads of Governments meet again in October ofthis year.

The arrangements have therefore been putin place such that the legal framework withinwhich a Single Caribbean Market and Economywill function will be in place by the year 2000.

Obviously, being part of a wider CaribbeanSingle Market and Economy will affect the wayin which the Barbadian economy functions andcomes to be structured.

1am conscious, Mr. Speaker of the fact thatthere are still deeply entrenched insular andprotectionist sentiments at work in our landwhich hold that we should reserve our localmarket for local producers only. 1am also awarethat there are concerns that some of thearrangements under which we do business inBarbados already put us at a disadvantage with

some Caribbean economies with which we will

now have to compete even more intensely.

I however wish to use today's occasion tourge every citizen, every Barbadian investor tosee the new Caribbean Single Market andEconomy not as a hindrance, but as a goldenopportunity.

The citizens of this country have a longhistory of making it in countries all across theglobe. In recent decades, companies likeSimpsons and Goddards have risen fromhumble origins in Barbados to become powerfuland successful enterprises even beyond ourregion. Recently, as well, we have created highquality export service industries that haveshown themselves capable of thriving at thecentre.of the international business arena.

A Caribbean Single Market and Economywill create a welcomed, broader space withinwhich Barbadian enterprise can flourish,provides us with the benefit of a larger market,a wider range of investment options andpossibilities, and the prospect of using thatbroader regional base as the foundation uponwhich we deal with matters concerning ourparticipation in the extra-regional economy.

Changes will however have to be made toeffectively and successfully provide for ourintegration into this new Caribbean economicdispensation. These changes will engage us inthis presentation and those to come.

But I wish this House of Assembly, everyBarbadian, and the entire Social Partnership ofour nation to agree and to act upon the strategicobjective of making our economy the mostcompetitive in the new Caribbean Single Marketand Economy by the year 2005.

Mr. Speaker, the year 2005 will also be ayear of great destiny in our international^economic relations.

For decades, Barbados like other developingcountries occupied a special niche in the

international economy. Our special status as asmall developing economy provided us withaccess to concessional financing frominternational lending institutions. It also servedas the point of leverage whereby we were ableto negotiate special preferential tradearrangements with European and the NorthAmerican economies. There was also the readyinternational acceptance of the view that we hadto use tariffs and non-tariff barriers to protectour infant industries, and that we will be

discriminating in how we treat national capital,goods, services and enterprises vis- vis similareconomic and financial transactions originatingabroad.

This environment that afforded countries

like ourselves access to special, preferential anddifferentiated • trade, economic and financial

relationships is now being dismantled, and weare faced with the prospiect that by the year 2005we may have to function under entirely newarrangements.

To begin with. Sir, at the end of 1998,Barbados ceased to have access to World Bank

concessional loans. We are also now engaged incomplex negotiations with Europe and theAmericas which could possibly see , thereplacement of the preferential access our goodsformerly enjoyed to their markets by one inwhich we phase in new reciprocal tradearrangements under which we get duty freeaccess to their markets by giving them duty freeaccess to ours. It is a tough new world.

Our international economic relations have

been made more complex by the coming intoexistence of the WTO which is applying newrules to international trade. Among them is therequirement that countries should dismantlenon-tariff barriers to trade; that trade in goodsand services should be progressively liberalised,that non-discriminatory practices should applyto goods and services of domestic and foreignorigin alike and that reciprocal tradearrangements meaning what I do to you, youshould do to me should become the new order

of the day.

The WTO only offers special and differentialtreatment to those countries classed by the UNas the least developed, which generally do notinclude the Caribbean.

The likelihood therefore is that with the

coming into effect of new WTO inspired rules,the international economic environment within

which our immediate development will takeplace will be more competitive and difficult thanthat of the past.

Indeed, Sir, the battle over the trade inbananas portends very much the character ofour new international realities.

For our part, in April 1994, Barbadosentered an arrangemenF with the WTO to put inplace new international trade arrangements bythe year 2004, among which are to be thedismantling of non-tariff barriers to trade andtheir replacement with bound tariffs which areonly to be temporary.

The point, Sir, is that changes in our traderelationship with Europe and the Americas andwith the general elobal economy and underWTO arrangements will come together by theyear 2005.

1 say to this House, Sir, therefore that theperiod between now and then must be treatedas a period of transition for this Barbadianeconomy, within which we make the necessaryadjustments to be able to successfully competein this more intensely competitive internationaleconomic environment.

Clearly, Mr. Speaker, it is better and easierto bat on an easy wicket than on a sticky one.

But Barbados must face its future withconfidence. The sectors which have driven thiseconomy in the past two decades are not thosewhich have functioned under preferential tradearrangements, likesugar, but those which fromthe outset have had to find their way in theinternational business arena without any specialcoddling.

Our mission therefore. Sir, simply now mustbe to successfully reposition this Barbadoseconomy in the new global economy such thatit can thrive as a competitive and robusteconomy in all of its spheres.

This presentation of budgetary proposals,with the others to follow in this term of this

administration, will therefore be shaped by theperception that we have these six years to makethe transition to a new economic order, and thattransition must be made in an orderly andcreative fashion.

Macro-Economic Management Issues

1 deal next. Sir, with our Macro-EconomicManagement Issues, Mr. Speaker, theachievements of these strategic economicobjectives we have set for our nation will be putout of reach unless we continue to providesound macro economic management to dealwith short term cyclical variations in theperformance of our economy.

It is to this that 1 now turn.

The 1998 Barbados Economic and SocialReport has been laid in Parliament and 1do notpropose to tire the House with a recital of itsessential facts.

Suffice it to say that it reflects an economyon a sound footing, having experienced sixconsecutive years of sturdy real economicgrowth, with low inflation, a substantialreduction over the period of the unemploymentrate from 23% to 11%, the containment of thefiscal deficit to manageable proportions; areduction in the debt service ratio from 24% toabout 8% and record levels of foreign reserves ofover $700 million at this time.

It should also however frankly be noted thatthere are certain warning signs which haveemerged and which must not be allowed to takeroot to threateja nor reverse the gains of recentyears.

These refer especially to the fall in ourforeign reserves by $11 million last year, therelatively slow build up in these reserves thisyear and the evidence of an element of excessdemand at work in our economy whichunaddressed could lead to external instability.

It is our judgement that the factor whichchiefly has induced these developments hasbeen a very rapid increase in credit over thecourse of the last two years, especially to thenon-financial private sector and for personalpurposes.

I should however be quick to point out thatthe link between the growth in credit andforeign reserves outflow is not and has not beennecessarily the only reason for our recent slowpace in foreign reserve accumulation.

Our foreign reserves have also been putunder pressure by the significant investmentbeing made in this period in plant andequipment for the tradeable sector which willredound to the advantage of the Barbadianeconomy in the years ahead. Our externalposition has also been affected by the sluggishperformance of our exports and by theinvestments abroad of the higher profitsaccruing to financial sector companies as well asto the investment abroad of the National

Insurance Scheme.

In such a context it is important to introducea mix of macro economic policy measures whichwill, by stimulating the export sectors inparticular, assist us in consolidating the gainsmade over the past six years.

But however to protect our economic stabilitywe also have to institute measures to deal with

the growth of credit.

Mr. Speaker, whenever this country hasexperienced balance of payment pressures in thepast, those pressures have generally arisen fromthe excessive creation of domestic credit to meet

large and unsustainable deficits of theGovernment.

None of th,e recent pressure on our foreignreserves has come from this source. In fact. Sir,in September last year, in early recognition ofthe warning signals in our economy, earlymeasures were instituted to reduce the deficit

below the target set at the start of the financialyear despite the fact that I might even have hada general election in mind.

The facts now show that the Government'sfiscal deficit has been reduced belowits originalceiling, and that in fact, net domestic credit toGovernment has fallen from $682.7 million atthe start of 1998 to $499.1 million at March 1999.

Our statistics however also show that

between July 1998 and July 1999, credit to thenon-financial private sector increased by over$400 million,-compared to an increase of $265.5million between July 1997 and July 1998, duelargely to a rise in personal disposable incomeand the rapid growth of activity in theconstruction sector.

In response to this extraordinary increase incredit to the non-financial private sector, Iaccepted the advice of the Central Bank ofBarbados to apply certain protective monetarypolicies; specifically an increase of onepercentage point in both the cash reserve andthe discount rate in July.

At the same time, provisional approval wasgranted for a further one and a half percentagepoint increase in the cash reserve ratio ofcommercial value, if warranted, after sufficienttime had elapsed to facilitate a review of theimpact of the first round of protective monetarymeasures.

Since the measures were introduced credit

creation has slowed somewhat. About $22million in new credit per month has beenadvanced in each month since the measures

came into place as compared to the $36 millionin new credit per month in the five-monthperiod befoj'e the new monetary policies wereput into effect.

I;

I am therefore satisfied, Mr. Speaker, thatthe credit control measures of July are beginningto have the desired effect and that no further

tightening should be pursued at this stage,especially since a one percentage point increasein the cash reserves ratio of the commercial

banks, by depleting commercial bank reservesby $32 million, could put pressure on somebanks at a time when the excess reserves of the

banking system are low, amounting only to $45million today.

The matter of the excessive growth of creditto the private sector will be kept under review.If necessary, further protective monetarymeasures will be put in place but we will notrevert to the selective credit controls and other

credit rationing devices which were in operationbefore the process of financial liberalisation wasinstituted in the early 1990's.

Generally, Mr. Speaker, our recent economicperformance has pointed to the dangers ofallowing this economy to expand at a rate fasterthan its sustainable rate of growth.

With population growing at less than 1% perannum, we can realise our objectives to createnew jobs and support a higher standard ofliving for our people by sustaining a growth rateat about 3% per year.

In 1998, our economy grew at 4.4%, wellabove the sustainable rate of growth. We haveset in train the measures to put ourselves backon a sustainable growth path, and it is projectedtherefore that this year and in the yearsimmediately ahead, our economy will continueto grow at a rate of about 3% per year.

I say also that, Mr. Speaker, in creating theconditions for our economy to grow at that rate,we also have to pay special attention to thesectors which are generating the growth.

In this respect, the facts are that in the past18 months the sectors of the economy whichearn foreign exchange have been growing at aslower rate than those which consume foreignexchange.

Government therefore acknowledges that ithas, in terms of short term tactical managementissues, to institute measures to contain thegrowth of domestic demand, to create anenvironment within which productive activitywhich can boost or save foreign exchange canflourish, and we must also restore theappropriate balance between traded and non-traded activities in this Barbadian economy.

These short term macro economic

management matters will concern us even whilewe focus on the strategic objective ofrepositioning the Barbadian economy to copewith new regional and global economic forces.

It is therefore. Sir, in such a context that Iturn next to the presentation of the FinancialStatement so that this Parliament can better

glean the financial parameters within which themanagement and development of our economywill take place.

The Financial Statement

The performance of Government's financesfor the financial year ending March 31, 1999turned out to be stronger than was initiallyprojected because of the buoyancy of theeconomy in 1998, and as a result of a majorfiscal policy adjustment made in September ofthat year.

Our fiscal policy for the financial year1998-99 was initially formulated to achieve adeficit not exceeding 2.6% of Gross DomesticProduct. With this objective in mind. Parliamenton March 20,1998 approved a fiscal programmethat projected current revenue of $1,540million,current expenditure of $1,537.8 million andcapital expenditure of $325.2 million to producea fiscal deficit of $323 million.

In addition to the expenditure which wasapproved by Parliament on March 20, 1998,supplementary provisions of$101.4 millionwereapproved during the course of the year.

.::-y

It wUl however be recalled, that inSeptember 1998 it was decided to limit capitalexpenditure to $280 million rather than $325million that Parliament approved as a means ofaverting over-stimulation of the economy. Thisfiscal measure was intended to reduce the

projected deficit from 2.6% to 1.5% of GDP.

The financial outturn for the fiscal year1998-99 was as follows:

Current Revenue

Current Expenditure

Capital Expenditure

Overall Deficit

- $1,555.4m

- $1,561.2m

-$ 257.4m

-$ 263.2m

rather than $323 million that Parliament said wecould have incurred at the start of the frnancial

year.

When the deficit is calculated on the basis

used by International Financial Institutions, itamounts to $45 million or 1.1% of GDP, wellwithin the initial limit of 2.6% of GDP, and therevised limit set in September of 1.5%.

Current Revenue 1998-99

The current revenue for the fiscal yearended March 31, 1999 was projected to amountto $1,540 million. The actual amount realised forthe period was however $1,555.4 million, whichwas $15.4 million greater than projections and$97.1 million greater.than the previous financialyear. This increase was due entirely to theperformance of the tax revenue which recordedan additional $98.5 million to reach $1,485.1million. On the other hand, non-tax revenue

declined marginally by $1.4 million from $71million in 1997/98 to $70.3 million in 1998/99.

Tax revenues for the financial year justended recorded increases in all categories. Taxeson incomes and profits grew by $40.6 million to$459.9 million. Growth in the receipts ofCorporation Tax was stronger than that for

IncomeTax, the other major taxin this category,and recorded a 13.1% increase against a 8.4%increase for the latter.

Revenue from taxes on goods and serviceshowever increased marginally by $25 million or3.5% to $748 million compared with the robust48% growth of $234.5 million recorded for theprevious financial year. This slow down ingrowth in taxes on goods and services can beattributed to the effects of the zero rating of abasket of basic food items in October 1997.

During the last financial year VATreceipts grewby a mere $3 million, to reach $454.9 million,while Excise Tax increased by $22.8 million toreach $189.2 million.

The growth in taxes on international tradewas $136.9 million, that is 7.0% or $9 millionhigher than in the previous year.

Property taxes in 1998 increased marginallyby $5.2 million reversing the decline which wasexperienced in the previous period when thosetaxes fell by $3.4 million.

Current Expenditure 1998/99

On the expenditure side. CurrentExpenditure for the fiscal year recorded a 7.9%increase or in dollar terms $114.1 million, to total$1,561.2 million.

The main contributor to the increase was

debt repayment which rose by $35.1 million tomove from $196.8 million to $231.9 million.Repayment of domestic debt increased by $48million as opposed to the external debtrepayment which fell by $12.9 million.

Interest payments for the period rose by$17.5 million, a $8.7 million increase. Domesticinterest costs accounted for 77.8% of the total

interest payments and increased from $162.4million to $170.3 million. Foreign interestpayments rose by $9.6 million or 24.6% from $39million in 1997/98 to $48.6 million.

Expenditure on salaries and wages rose by$25.9 million or by 5.3% to reach $516.5 millionfor the financial year. This level of increase wasdue largely to the 3.2% wages and salariesincrease in the public sector in the last financialyears.

Current transfers grew by $23.4 million forthe period which was significantly less than the$69.1 million increase recorded in the previousfinancial year. The major contributors to thatincrease were the Transport Board whichreceived funds mainly to pay off debt, and $18million to the University of the West Indies inrespect of arrears and to pay for increased intake of students.

Capital Expenditure 1998/99

Capital Expenditure in the last financial yearand lending remained virtually at the same levelof $257.4 million as it was in 1997/98, with allthe categories remaining at the same level ofexpenditure.

Deficit Financing 1998/99

The 1998/99 fiscal year was the thirdconsecutive year that the international capitalmarket was not a source of funding for our fiscaldeficit. Capital inflows of $43.5 million werereceived from foreign sources to assist in thefinancing of the capital projects. Once again themain source of financing were domesticTreasury Notes and Debentures.

National Debt

As regards to our National Debt, at March31, 1999 our National Debt stood at $2,796.7million up from $2,764.2 million the previousyear, a 1.2% increase over the period endedMarch 31, 1998. Domestic debt grew by 2.1%and foreign debt declined by 1.8%. The detailsof the domestic and foreign debt at March 31,1999 which I must present to this House asrequired by the Constitution were as follows;

Domestic Debt

Treasury Bills

Borrowing from theCentral Bank

Ways & Means Account

Debentures

Local Loans

Saving Bonds

Tax Refund Certificates

Tax Reserve Certificates

As regards our

$ 575.8 m

0.0 m

$1,452.3 m

$ 9.1 m

$ 84.3 m

$ 1.3 m

$ 0.3 m

Foreign Debt $ 673.6 m

Foreign Bonds $ 229.6 m

Loans from International

Financial Institutions $ 417.0 m

Loans from

Foreign Commercial Banks $ 13.0 m

Loans from Government &

Governmental Agencies $ 14.0 m

Public Finance 1999-2000

In relation to present financial year, the1999-2000 Estimates of Revenue & Expenditureapproved by Parliament in March this year wereformulated within the context of a fiscal deficitnot exceeding 1.5% of GDP.

Those Estimates projected total currentrevenue of $1,630 million, total currentexpenditure of $1,657.6 million and capitalexpenditure of $318.5 million giving an overallfiscal deficit of $346.1 million.

At the end of the first quarter of the year,the financial performance was basicallyconsistent with projections in spite of a slightdecline in the revenue from the VAT. This wasdue in part because increases in the revenuefrom taxes on incomes and profits compensatedfor the decline in the receipts from the VAT.

Current revenue was projected to amount to$352.1 million whereas $349.4 million wasrealised, just $2.7 million short of the target.When compared with the first quarter of theprevious year 1997/98, there was a marginal $2.6million increase.

Revenue from taxes on incomes and profitsfor the quarter yielded $110.8 million, $4.6million more than was projected and $10.8million more than receipts for the same periodlast year. The revenue from taxes on propertyand from import duties was basically on targetfor the quarter and showed marginal increasedreceipts for the previous financial years.

On the other hand tax receipts on goods andservices were below projections and last year'sperformance by $17.5 million and $11.1 millionrespectively. This was principally as a result ofa decline in the revenue from the VAT. Duringthe first quarter of the financial year revenuefrom the VAT amounted to $97.2 million ascompared with a projected $112.3 million and$108.7 million realised in the previous financialyear.

On the expenditure side, Sir, totalexpenditure for the first quarter amounted to$375 million which was $35.9 million less than

the $410.9 million spent by Government in thesame period in the previous financial year. Itwas also only $2.7 million, or 1% in excess of theexpenditure projected for the first quarter.

Capital expenditure for the first quarteramounted to $41.2 million, an amount that wasmarginally below the $43.8 million recorded inthe corresponding financial year. The trends saythat this data indicate a serious effort byGovernment to keep its spending in check.

Overall, the'trends also point to stability inGovernment's financial position, and suggestthat the fiscal policy, having at its centre asmaller fiscal deficit, is well on the way to beingsuccessfully achieved.

In the prevailing financial and economicclimate, it is essential that such financialdiscipline by Government, which hascontributed so substantially to the generalstability of the economy, be maintained andcarried with us into the future.

Policy Objectives

I turn next to the specific policy objectives ofthe measures which I shall so announce to the

House. In the prevailing climate of fiscalstability, appropriate measures can now betaken to consolidate our recent economic gains,but more especially so to better prepare thiseconomy to deal with the challenges which willbe ushered in at the turn of this new century.As such, the overriding concern of the measuresshortly to be announced is to assist in preparingthe productive sectors of the Barbados economyto compete successfully in the Caricom SingleMarket and Economy and the emerging globaleconomy.

Our strategy for repositioning our economyin Caricom and in the global economyacknowledges to begin with that we have ruledout the use of exchange rate variation as a toolof competition, and that our wage rates aregenerally higher than those of our immediatecompetitors,

Barbados will therefore begin the manoeuvreto reposition itself to become more competitivein Caricom and globally from the position ofbeing a relatively high-cost producer of goodsand services which has ruled out devaluation as

the means by which to correct cost distortions inits economy.

Operating under a fixed exchange ratesystem such as we have, we will maintain ourcompetitive edge only if we ensure that the

transaction costs of doing business here are nothigher and do not riseat a faster rate than thoseof our main competitors.

The implication is that to secure thecompetitive position of our economy which weseek; we have to systematically dismantle all ofthe encumbrances of doing business inBarbados, remove all the factors which deter ordistort investment decisions and ensure that ourproducers have access to inputs ahd resourceson terms and at costs that are at least asfavourable as those available to theircompetitors.

We also have especially to ensure that thereis a climate conducive to sustained investment

by the private sector to allow it to recapitalise,refurbish and retool much of our productivecapacity, and to support private expenditure onproductivity boosting measures, research,market development, training and retrainingand the introduction of new and improvedinformation technology.

There is also no doubt that the provision ofspecial incentives and supports to ourproductive sectors will and must continue tobeof crucial importance in the development of anew competitive Barbadian economy. We willhowever now have to ensure that suchincentives and supports are consistent with ourWTO obligations and are in harmony with theprovisions of the Caricom Single Market andSingle Economy.

Many of the measures to be used to makethe Barbadian economy truly competitive inCaricom and in the global economy will havefiscal implications which cannot be borne all inone year. Others will evolve and will have to bemade responsive to future regional andinternational developments which cannot beproperly guaged at this time.

Government, in such circumstancestherefore proposes to speak to these matterseach year to ensure thatby the year 2005, whenmost of the changes that will affectus will come

into force, we would, have successfully preparedthis economy for any eventuality.

I must especially stress that the removal ofthe many encumbrances to doing business,many of which have to do with procedures inthe public sector which lead to delays anddistortions of private investments and toincreased transaction costs, must besystematically tackled.

The evidence is clear that practices at thePort, at the Customs, at the Corporate Registry,in the Town Planning Department, in theImmigration Department, among others, moreoften seem not designed to facilitate the smooth,orderly and cost effective taking andimplementation of investment decisions. Somebusiness practices in the private sector too leavemuch to be desired and are not conducive to thecreation of a climate of competitiveness.

I therefore propose to support the othermeasures to be introduced this evening and inthe future by the creation of a Commission onCompetitiveness.

I will chair it in my capacity as Minister ofEconomic Affairs and it will be serviced by theMinistry of Economic Affairs.

It will function to ensure that the bestpractices by public sector agencies conducive toinvestment facilitation and improved nationalcompetitiveness are followed by public sectoragencies, and that the mass of red tape thathasheld back the realisation of so much of oureconomic potential is removed on a systematicbasis.

It will also, Mr. Speaker, exercise oversightover the implementation of the provisions of theSingle Market and Economy as they affect theBarbadianeconomy, and pay special attention tomatters pertaining to the diffusion of improvedinformation technology through this economy asa factor in inducing improved competitiveness.

The Commission will receive and act uponrepresentations from the public and will be

required to make frequent reports to Parliamenton its work in this most crucial matter.

Economic and Financial Measures

I turn now specifically to our economic andfinancial measures.

Energy Prices

Dealing first of all with energy prices. It isclear, Mr. Speaker, the sphere of energy pricesis an area in which Barbadian producers stand ata disadvantage to regional competitors.

A new regime therefore has to be put inplace to remove this disability. Our disabilityarises from the fact that the level of taxation onenergy products in Barbados is far in excess ofthe rates charged by other Caricom countries.

The new energy pricing regime that wepropose to introduce is one under which thelevel of taxation on energy products will, byprogressive steps be reduced, to bring them inline with the Caribbean median. Variations inthe crude oil prices, which are beyond ourcontrol and which affect all regional producersin the same manner, obviously will have to bepassed on.

The unfortunate facts are that in the past,energy products have been used as a mainsource of tax revenue. As such, theconsumption tax on gasoline which stood at 50cents per litre in 1986 was, by 1993, raised to89.581 cents per litre.

During the same period, the tax on dieselwas increased from 43.6 cents to 74.8 cents, andthat on fuel oil, which is used mainly in theproduction of electricity, was increased from 4.6cents to 9.6 cents.

The introduction of the Value Added Tax in

January 1997 saw the consumption tax forgasoline resolved into an excise tax of 69.49cents per litre for gasoline and a VAT of 20.087cents per litre; for automotive diesel it was

58.020 cents and 16.584 cents respectively. Itshould be noted that for commercial enterprisesthe VAT is refundable and in effect the price ofthe product for enterprises was effectivelyreduced by the amount of the VAT.

In March 1998, subsequent to the closure ofthe Mobil refinery. Government took theopportunity to review energy prices. It totallyeliminated the excise tax on fuel oil andkerosene. The tax on gasoline was reduced to83.9 cents per litre and on transport diesel to64.60 cents per litre. The retail price of gasolinetherefore went down to $1.44 per litre andautomotive diesel to $1.25 per litre. In Januaryof this year, as a result of world market pricechanges, the price of gasoline went down to$1.34 and automotive diesel to $1.20 per litre.But the January decreases mainly passed on tothe public the benefit of the reduction in theprice of crude oil - the level of taxation on thoseproducts remained unchanged.

The prices for energy products howeverremain substantially higher than most of ourcompetitors in the region. It should be noted'that the cost of producing the products is aboutthe same for all islands, the main difference is inthe level of taxation. For example, the.total taxon gasoline per litre is now 82.6 cents inBarbados, 44.6 cents in Trinidad, 38 cents inJamaica, 39.6 cents in St. Lucia and 57.1 cents inSt. Vincent. For diesel it is 72 cents per litre inBarbados, Trinidad it is 12.8 cents, 32.0 cents inJamaica, 43.4 cents in St. Lucia and 33.5 cents inSt. Vincent.

As I have indicated. Sir, we therefore intendto bring the levelof taxation on energy productsin Barbados in line with the rest of the region inthe shortest possible time. In light of themagnitude of the differences in the level of taxeswhich I have just demonstrated, it is not feasiblefor the full adjustments to be made in the courseof a year. In addition, our priority, Mr. Speaker,has to be to pass on the benefits of significantreductions in taxes to the productive sectors ofthe econoifly, including trucking and publictransportation.

Mr. Speaker, we have, for sometime now,been harbouring a false distinction betweenautomotive and industrial diesels. There is no

difference. Sir, in the technical specifications ofthe diesel fuels being sold locally. Consequently,there will now be a single price for diesel fuel inBarbados.

I propose now to reduce the excise tax ondiesel from 56.18 cents per litre to 34.62 centsper litre. Bringing our taxon this product in linewith that obtaining generally in the region. Theretail price will now be reduced from $1.20 perlitre to $1.00per litre. Manufacturers and otherregistered users will continuetobenefitfrom thetax concessions on their inputs. The revenueloss is expected to be approximately $6 millionper year or $3 million for the remainder of thisyear.

In January of this year, crude oil prices fellto US$8 per barrel. The retail price of gasolinewas reduced from $1.44 per litre to $1.34 perlitre, to pass on to the public the full benefit ofthis fall in crude prices.

Since then the price of crude oil hasincreased from US$8 per barrel to US$18.50 perbarrel, an amount equivalent to a 14 centsincrease in the cost per litre of gasoline.

It is not possible, Mr. Speaker, for theGovernment to absorb all of this increase by acorresponding reduction in the excise taxby anequivalent amount.

I propose to reduce the excise tax ongasoline from its present level of 65.118 centsper litre to 56.824 cents per litre.

In effect, the Government will absorb almost10 cents of the 14 cents increase in the price ofgasoline which has arisen from the increase incrude oilprices, by way of a reduction in the taxon the productand pass on only5 centsper litreto the public.

Theprice ofgasoline will now move to$1.39per litre, still lower than the $1.44 per litrewhere it was at the start of the year despite the

fact that crude oil prides are far higher than theywere then.

The revenue loss is approximately $8.5million per year or $4.3 million for theremainder of the fiscal year.

These changes to the excise tax on gasolineand diesel together with the new retail priceswill come into effect on September 1, 1999.

In the years ahead, Mr. Speaker, we willreduce the level of the tax on gasoline until itreaches the regional average.

Finally, on the matter of energy pricing, theinformation available to us indicates that energyproducts being imported from Trinidad andTobago at prices far in excess of the prices atwhich similar products can be landed inBarbados from competing destinations.

This matter has been referredattention of the Trinidadian suppliers.

to the

To protect the competitive position of theBarbadian economy> we will, in addition toreducing our domestic taxes on the products,ensure that Barbados sources energy productsfrom the cheapest and the most reliableproducers.

Agriculture and Fisheries

I deal nextwith agriculture which is anothersector whose functioning is likely to beadversely affected by new international tradearrangements.

In anticipation of this, last year I indicatedthat Government proposed to establish anAericultural Development Trust to dispenseconcessional financing as well as funding fortechnical assistance to our farming community.

During the past year, extensiveconsultations were held with a wide crosssection of persons involved in the agriculturalsector and I am pleased to report that theconcept of the Agricultural Development Trust

13

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iiilSSCi

•If

has received strong endorsement. As a result ofthose consultations, a committee was establishedto make recommendations on the manner in

which the Trust should function and the various

ways in which it could be used to providefinancial support to the agricultural and fishingindustries. The work of this group is almostcompleted and I expect the Trust to become areality by the start of the next fiscal year.

At present, there are a number ofagricultural items which are subject to licencesand as is the case with the industrial sector,those licences will remain in place until March31, 2000.

When we remove those licences oh April 1,2000, as part of our obligation to the WTO, wewill put in place on those goods the tariff rateswithin the limits which we agreed to when weacceded to the WTO Agreement.

We are now finalizing those rates, takinginto account not only our need to provideprotection for the agricultural industry but alsothe need to control the cost of living.

In the meantime, we have taken theopportunity to review the existing incentivesprovisions on agriculture and fisheries toidentify new incentives to assist the sector inbecomingmore competitivein the local, regionaland international markets. These will beincorporated into the structure of theDevelopment Trust when it comes intooperation.

The Ministry of Agriculture in reviewing thecurrent incentives programme sought to do thefollowing

i) identify those incentives which provedhelpful in the past and have relevanceto present and future agriculture;

ii) identify new incentives to encouragefarmers to use new technology in theirmanagement and production systemsto make their businesses more efficient;

14

iii) provide incentives which will create aclimate in which farmers throughimproved performance' can becomemore competitive.

I now therefore propose to provide thefollowing incentives to the agricultural sector:

(1) A grant of 50% of the cost of sprayingequipment up to a maximum of$800.00.

(2) A grant of 50% of the cost ofestablishing an approved irrigationsystem including provision for a waterreservoir to a maximum of $60 000 foreach individual farmer.

(3) A grant of 60% of the cost ofestablishing an approved irrigationsystem including provision for a waterreservoir to a maximum of $72 000where two or more' farmers areprepared to share common facilities orfor active members of a registeredfarmers' association.

(4) A grant of $500.00 per hectare or 30%of the cost whichever is less, forestablishing an approved pasture.

(5) A rebate of 18% of the price ofmachinery used in agriculture andagro-processing (excluding sugar caneharvesters).

(6) A rebate of 50% for the components ofan approved tunnel ventilation systemfor poultry houses to a maximum of$15,000.00 per holding.

(7) Prices support incentives for cottonharvesters including a 40 centsincremental increase per pound ofcotton harvested.

It is anticipated that these incentives willcost the Treasury in excess of $2.0 million if fullyutilized. ThS list of incentives is set out at

Appendix II.

Asa means ofmeeting the cost of these andother incentives, as well as providing some ofthe funds to assist in the setting up of theAgricultural Development Trust, the CommonExternal Tariff rates of 40% will be applied toboth imported lamb andbeef effective as soonas the CARICOM Secretariat is notified.Currently the duty on imported lamb is 0% andis destroying our sheep industry while that onbeef is 30% which is below the rate that we canset under the Common External Tariff.

I have also decided to extend some newconcessions to the fishing industry. At presenta number of items used in the fishing industryare zero-rated under the VAT Act. Certain ofthose items are also free of Import Duty butothers are not. The existence of two differentlists hascreated some confusion for the industryin the past. Therefore, to remove that problem,I have decided to have one list for both VATand Customs Duty andtoadd a number ofnewitems tobothlists. The complete list isassetoutat Appendbc HI. It includes;

(1) Stoves, sinks and other galley fittingsspecifically for marine use;

(2) marine grade pljrwood and hardwoodssuitable for boat construction;

(3) navigation charts and plottinginstruments;

(4) fish saws and blades, waterproofaprons and other specialised goods forhandling fish.

In addition, in order to extend the coverageof the concessions to the fishing industry.Section 7(1) of the First Schedule of the VAT Actwhich deals with eligibility for zero-ratedsupplies, is being amended to read "a supply ofapproved products for use in a commercialfishery where the user is certified by theMinister responsible for fisheries to be engagedinan approved fishery enterprise".

As a result, fish vendors and distributors inaddition to fishermen will be eligible for zero-

rated supplies including insulated boxes forstoring and transporting fish.

The criteria for approved fishery enterprisesto benefit from the provisions are set out atAppendix IV ofthis presentation.

Manufacturing Sector

During the last six years the ManufacturingSector in Barbados has recorded positivegrowth. The sector provides employment forapproximately 10,000 Barbadians, the majority ofwhom Eire women, andcontributes $200 millionannually to the Gross Domestic Product. TheGovernment remains strongly committed tothissector and conceives of it as growing inimportance as a generator ofjobs and incomes.In both my 1997 and 1998 budgetarypresentations, emphasis was placed onimproving competitiveness and efficiency,within the sector. Measures were thereforeintroduced in those budgetary presentationsprimarily to encourage manufacturers to beginthe process of restructuring of their productionsystems so as to be able to competeinternationally. In particular, a special fundingof $1 million per year for each year for technicalassistance has been provided to further reducethe cost of production incompanies, to improveproduct and package design and to assist withISO 9000 certification.

Small manufacturers also now stand tobenefit from the generous duty concessions andother incentives contained in theSmall BusinessDevelopment Act which was laid in Parliamenttoday.

The sector will also benefit from our newenergy pricing arrangements and from changesto the property tax which I shall announce latertoday.

Government however recognises that themanufacturing sector is far more exposed to theill effects of the new regional and internationaltrading arrangements than any other sector ofthis Barbados' economy.

15

For example, in this year, the level ofprotection enjoyed by domestic producersagainst regional and extra regional competitionwas reduced as a result of the reduction of the

highest rate of import duty to 20%, in keepingwith our regional obligations under the CET, thephasing down of the surtax on extra-regionalimports to 35% and the removal of licences onregionally produced soft drinks.

We will continue to provide financial andother incentives to help the sector retool, toreduce its costs, and to lift its profitability andstandards.

We also commit ourselves to ensuring thatthe sector is afforded every inch of protectionavailable, having regard to the regional andinternational trade agreements into which wehave entered, especially the WTO agreement.

Four years after signing the WTOagreement, there is still not enough awarenessand understanding about WTO requirementsand their possible impact on trade andproduction.

At the time of accession, each WTO memberwas obliged to submit schedules which set outthe tariffs to be applied in terms of ceilingbindings at the commencement of the ten-yeartransition period for implementation of the WTOagreement, which commence in 1995. Theschedule outlines the terms under which

imported goods from extra-regional sources maybe permitted entry into the domestic market ofeach WTO member country. Barbados made itssubmission on April 15, 1994.

Barbados, as a member of the World TradeOrganisation, is also required, as part of thetrade liberalisation process, to remove itstechnical and non-tariff barriers to trade. In this

regard, by 2004 with few exceptions, namelythose items which impact upon security, all thelicensing procedures, which presently offerprotection to the manufacturing sector underthe 15th April 1994 Agreement will be removed

and replaced with tariffs (a process known astariffication), in order that we may fully meetour WTO obligations.

In keeping with those 1994 commitmentsand after discussions with the Barbados

Manufacturing Association and other privatesector agencies, it is the Government's intentionto begin the process of removing licences onextra-regional imports from April 1, 2000 andapplying tariffs on the basis of the schedulewhich we submitted to the World Trade

Organisation at the time of our accession.

The application of such tariffs will not onlypermit us to begin to meet our obligations to theWTO, but will continue to provide somemeasure of protection and comfort to oursensitive industries in the sector as is done in

other countries, both developing and developed.The particular items involving extra regioiralimports which would be free of licences fromApril 1, but subject to tariffs as prescribed in theagreement of 1994 are as follows:

Heading No. Description of Goods % Bound rate of

To be paid as atApril 1, 2000

Soya bean oil and itsfractions, whether ornot refined, but notchemically modified

Sausages and similarproducts of meats,meat offal or blood,

food preparationsbased on these products.(This category will bedifferentiated to exclude

those types of sausageswhich are not producedlocally)

Other prepared or preservedmeats, meat offal or blood

(excluding corned beef) 213%

Uncooked pasta not stuffedor otherwise prepared(macaroni, spaghetti)toprotect local producers 100%

Heading No. Description of Goods % Bound rate ofTo be paid as atApril 1, 2000

3402.203 Other detergents,particularly

3402.902 powdered laundrydetergents importedfrom outside the regionto protect our manufacturers when we

remove the licences

6109.101 T-Shirts made of cotton

6109.901 T-Shirts made of other

textile material importedfrom outside the region

These are in compliance with our obligationsas agreed to on 15 April 1994. It is important tonote that the above rates will not remain at thesame level but must be reduced each year toreach the minimum ceiling fixed in 2004. Thismeans that those bound rates will be reduced by33'/3% by 2004.

However, in accordance with our Caricomobligations, we will have to seek permissionfrom the Council for Trade and Economic

Development (COTED) for a suspension of theCommon External Tariff (GET) and thereplacement of the bound rates of duty on theabove items as I have specified.

These measures will enable us to protect ourmost sensitive areas of manufacturingproduction when we remove licences in amanner that is consistent with both our WTO

and Caricom obligations.

It provides a breathing space only. In thespace, all concerned with the sector's operationmust redouble the effort to fund and deviseindustrial solutions to industrial problems in theknowledge that the old devices of tariffand non-tariff barriers will effectively come to an end inthe years after 2005.

Information Services Sector

Mr. Speaker, over the past decade theinformatics industry has been firmly established

as a major sector of growth and development inBarbados. The rapid expansion of the sector inthe 1980's and 1990's was mainly through dataentry, medical claims processing and similaractivities.

Today, significant changes in technologyhave eroded the market opportunities which wewere previously able to exploit. This hasmanifested itself in some job losses in the sector.

We have, on the other hand, witnessed anexplosion in the level of interest and investmentin software development and related highervalue-added aspects of the sector. Such is thelevel of activity in the software developmentsub-sector that on present trend, Barbados willface a severe shortage of programmers in thenot too distant future.

The Government is fully committed to theprovisionof training so as to facilitate the fullestpossible growth of this industry. We aresupportive of the plan of the University of theWest Indies to establish the School ofInternational Services which will include asoftware development institute. This is expectedhowever to come on stream in the year 2000.

However, the demand for programmers isso heavy and so immediate, both fromcompanies already in operation as well as frompotential investors, that the Government willimmediately embark on a training initiativewhich will alleviate the local shortage ofsoftware development skills and reduce theneed to import these skills.

I propose to allocate $0.5 million in supportof this initiative for practical, leading edge,industry focused training in these areas. Theprogramme will be implemented by theBarbados Industrial Development Corporation(BIDC) and in collaboration partners in theindustry.

This measure will ensure that there is no

loss of momentum in the sector whilst the longterm training plans of the UWI are beingdeveloped.

International Business and Financial Services

During the 1980's Barbados took a fresh lookat the international business and financial

services sector and implemented a series oflegislative initiatives that resulted in thedevelopment of the sector as it is nowconstituted.

We however recognise that there aresignificant challenges ahead. At every turn theindustrialised countries are lookingunfavourably at countries considered to be "offshore financial centres". One of the most serious

challenges lies in a report published in 1998 bythe Organisation of Economic Cooperation andDevelopment (OECD) entitled "Harmful TaxCompetition - An Emerging Global Issue". Thisreport in effect challenges the sovereign right ofstates to determine fiscal policy, including taxrates and indeed whether taxes should be

imposed on any item of income. This reportfocuses on services generally and moreespecially on financial services.

The Barbados Government has taken this

matter with upmost seriousness and hasdetermined that it was in this country's interestto engage the OECD on the issue.

Barbados will however continue to expandits ability to provide international financialservices. We wish especially to diversify therange of services which we export. We havealready recognised the importance ofinformation technology and electroniccommerce. In this regard we have alreadyestablished a policy committee that will addressBarbados future competence to deal with thisrapidly evolving area by determining the legaland regulatory framework that will allowelectronic commerce to flourish in this land.

Indeed the delivery of services through E-Commerce will be one of the most importantfeatures of service delivery in the future.

We will therefore embark upon aprogramme over the next year to determine thefeasibility of expanding our services providedinternationally to include educational services,

health services and cultural servicesespecially inthe areas of music and film. We expect thatthese services will meet our principal needs ofgenerating employment for a wide cross sectionof Barbadians as well as earning foreigncurrency.

The sector has evolved depending heavilyon the Canadian market and we propose tolaunch major promotional and developmentinitiatives to change this situation. For example,we recently concluded a double taxationagreement with Cuba and it is our intention toconclude similar agreements with countries inLatin America and Eastern Europe.

Additionally, Government in associationwith the private sector, embark on a newmarketing campaign in Latin America in aneffort to attract business from those growingeconomies

In addition to product development, at theforefront of our considerations is our policy ofensuring that supervisory and regulatorypractices in Barbados meet internationalstandards. In 1998 amendments were made to

the insurance legislation to achieve this objectiveand amendments are currently being made tothe Offshore Banking Act. The InternationalBusiness Companies Act itself, as well as itsadministration, are also under review. Barbadoshas further enacted anti-money launderinglegislation which provides for the establishmentof an anti-money laundering authority.

In order to meet the additional commitments

to the development of the services sector wehave agreed to the restructuring of theInternational Business Division of the Ministryof Industry and International Business and torecast it as Barbados International Business

Agency. In order to meet the cost ofrestructuring we will allocate an additional$1 million to this sector. Out of this

restructuring we expect to see the developmentand implementation of strategies for:

higher supervisory andregulatory standards

Tourism

greater efficiency

new services and products; and

increased and diversified

marketing and promotion.

For several years tourism has been thedominant industry in Barbados, and it has beenidentified to be at the centre of the efforts to

transform Barbados into a high quality exportservice economy.

The emergence and growth of tourism wasfacilitated by the provision of various fiscalincentives by Government, where the intentionwas to stimulate investment in the sector.

The major piece of legislation whichspecifically targets the tourism industry is theHotel Aids Act, but this legislation dates back to1956. Even though the Act was consolidated andrevised in 1985, its provisions are notsignificantly different from those of the 1956legislation. As the Act currently stands,incentives in the form of income tax relief and

duty-free concessions on imports of buildingmaterials and other items are available to those

who qualify for benefits under the Act.

Apart from the Hotel Aids Act, otherincentives to the tourism industry are providedfor under the Special Development Areas Act(1996-21) and under the Hotel RefurbishmentProgramme.

Although the existing incentives, particularlythe Hotel Aids Act, have stimulated investmentactivity and the Hotel RefurbishmentProgramme has facilitated the replacement ofkey supplies and pieces of equipment, there areseveral other areas of importance to theoperation of the sector that need to beaddressed. These include financing forrefurbishment and upgrading, consolidation inthe small hotel sub-sector, encouragement forconstruction of large properties and propertiesin non-coastal areas, encouragement for the

development of attraction facilities whichemphasise our natural, historical, and culturalheritage, and incentives to encourage companiesin the industry to emphasise marketing andtraining.

Financing for refurbishment and upgradinghas been increasingly important in recent years.Companies in the accommodation sub-sectorhave been finding it very difficult to obtainfinancing on attractive terms and conditions.Firstly, the duration of loans has tended to beno more than seven or eight years and then onlyin exceptional circumstances. Secondly, the costof financing has generally been too high.

The small hotel sub-sector has been

particularly affected as a result of the difficultiesin obtaining financing on attractive terms andconditions. Small' accommodation propertiesaccount for 40% of the total number of rooms in

the tourism industry, but if these properties areto have any chance of remaining viable in thelong-term then special financing incentives mustbe developed to meet their needs.

In addition, Barbados currently has very fewlarge hotel properties which could potentiallyattract the attention of some of the largerinternational chains. Also in light of the virtualunavailability of land on the coast fordevelopment, encouragement should beprovided to stimulate development in non-coastal areas.

Establishment of additional attractions which

emphasise our natural, our historical, and ourcultural heritage is one way by which we canenhance our tourism product. It is thereforeimportant to provide incentives and assistancefor these types of ventures.

In the areas of marketing and trainingenough is not being done. It is imperative thathoteliers are encouraged to become moreinvolved in the marketing and training of theisland's tourism product and that hoteliers andrestaurateurs get assistance for training for theirstaff.

In the past nine months the sector hasperformed somewhat sluggishly, suggesting thatnow is an opportune time for us to deal withmatters pertaining to the cyclical performance ofits industry within the context of strategic longterm objectives.

The range of activities which now constituteour Hospitality Sector are such that they cannotbe provided for under the existing Hotel AidsAct.

Equally, the financial and operationalfeatures of the modern industry were notanticipated by the 1956 nor 1985 legislation.

Our hospitality industry has thereforeoutgrown its legislative and its incentiveclothing.

Accordingly we will now put in place a packageof incentives which will serve to:

facilitate the refurbishment and

upgrading of accommodation facilitiesboth large and small;

stimulate the construction of largeraccommodation properties;

encourage the consolidation ofproperties in the small hotel sub-sector;

• encourage the development ofattractions focusing on our natural,historical, and cultural heritage;

• facilitate the upgrading of restaurants;

• encourage hoteliers to become moreinvolved in the marketing of theisland's tourism product; and

• assist hoteliers and restaurateurs with

the training of their staff.

The main incentives we propose to introducewhich will take effect from January 1, 2000 areas follows:

Establisliment of a fund to provideloans at concessionary interest rates forthe refurbishment and upgrading ofaccommodation properties with lessthan 75 rooms and for the

refurbishment and upgrading orconstruction of facilities to be used for

the purpose of carrying on a businessin the area of our natural, historical

and cultural heritage. This Fund will beestablished in the first instance bymoving $30 million from the IndustrialCredit Fund to the Enterprise GrowthFund to be used entirely for thispurpose;

Accelerated write-off of interest on

loans up to $7.5 million where the loanproceeds are used to refurbish andupgrade accommodation facilities;

Accelerated write-off of interest on

loans up to $30 million where the loanproceeds are used for the constructionof new accommodation facilities of not

less than 250 rooms and where the

property provides for conferencefacilities;

Accelerated write-off of interest on

loans up to $20 million where the loanproceeds are used for the constructionof new accommodation facilities in

non-coastal areas;

Accelerated write-off of interest on

loans up to $15 million where the loansare used for the consolidation of

properties in the small hotel sub-sector;

Accelerated write-off of interest on

loans up to $3 million where the loanproceeds are used to refurbish andupgrade or construct facilities whichemphasise our natural, historical andcultural heritage;

Provision of duty-free concessions torestaurants which meet specific criteria

established by the Barbados TourismAuthority;

• Granting of tax credits to restaurantswhich refurbish and upgrade theirproperties to meet specific standards;

• Accelerated write-off of 150% of anyfunds spent on marketing expensesincurred by accommodation facilities;

• Accelerated write-off of 150% ofexpenditure incurred on by hoteliersfor training of staff by hotels andrestaurants; and

Provision of benefits for the first time

in the form of duty-free concessions onconstruction materials for theestablishment of time-share properties.

In the preceding incentives relating tofinancing, accelerated write-off of interest willonly be applicable to loans with a nominalborrowing rate greater than 8.5%. Also, therewill be unlimited carry forward of theaccelerated interest component in the event thatit cannot be set off against income in a particularyear. Loans received from the Fund to beestablished to provide financingat concessionaryrates willnot be eligible for accelerated write-offof interest.

The new incentives we have provided willbe in addition to retention of the majorprovisions of the existing Hotels Aids Act asoutlined earlier. However, to facilitate moreefficient use of the island's limited resources, itis necessary to modify those provisions. Inparticular, the requirement to have a kitchenand dining room fora property tobenefit underthe Hotel Aids Act should no longer benecessary. As a result of this proposed changethere is the need to extend concessions toeligible restaurants for the first time sothat theycan improve their standards and enhance theisland's tourism product.

Lastly, I wish to emphasise that eventhough the broad thrust of our incentives has

been spelt out here, members of theindustry will be provided with the opportunityto fine tune the details of the varipus proposalsbefore they are brought into operation onJanuary 1, 2000.

Other Special Measures

Betting and Gaming

Sir, I turn next to the question of Bettingand Gaming. It has been drawn to my attentionthat, with the ongoing expansion in the localhotel sectorcoupled with current requests fromexisting and potential gaming machineoperators, there is a need for the regulationspertaining to Betting and Gaming to berevisited.

I have therefore decided to accept therecommendations that effective September 01,1999 the maximum ceiling pertaining to gamingmachines should be increased from 550 to 800.The licences will be allocated as follows:

Number of Machines

Current

Arcades

Hotels 100 rooms

and more 20

51 - 99 rooms 15

26 - 50 rooms 10

01 - 25 rooms 6

Proposed

Mr. Speaker, it would also appear from thelarge number of requests for licences beingsought,the industry is doing well enough tomake an appropriate contribution to theexchequer. Therefore effective September 01,1999 the following fees will be applicable;

Gaming Machine Licences (other thanAmusement Machine Licences) -

• a whole year licence - $10,000.00

a half year licence $ 6, 200.00

• a quarter year licence - $ 3, 800.00

Amusement Arcade Licence

For the issue or renewal of:

• a whole year licence - $ 220,000.00

• a half year licence $ 115,000.00

It is expected. Sir, that these changes willyield additional revenue of $3.4 million in a fullyear, and will help us to underwrite the costs ofincentives that we are providing to theproductive sectors.

Cargo Handling Rates

For some time the Port of Bridgetown hasbeen considered a high cost Port. As a measureto enable the operation of the Port to make abetter contribution to a more competitiveeconomy, it is proposed at this time to reducethe cargo handling rates on full importedcontainers.

Effective January 01, 2000, the new cargohandling rates on these containers will be asfollows:

Current

RS&D

Proposed

RS&D

Charge Charge

(BDS.) (BDS.)

Twenty- foot equivalent units(TEU's) $704.00 $680.00

Forty-foot equivalent units(FEU's) $1 408.00 $1 360.00

This is just a'beginning of the measures tomake the Barbados Port a more competitive andcost-effective port.

Despite this measure leading to a reductionin revenue of approximately $750,000.00, it willbring about a direct benefit to the importer andindeed the ultimate consumer.

Pensions

Before I go on to matters pertaining totaxation I wish today to deal with a matter thathas a 21st century dimension.

Last year, Mr. Speaker, while dealing withissues related to the National Insurance Scheme,

I drew attention to the Report on the NinthActuarial Review of the Scheme and the

concerns raised therein about the difficulties

which are likely to confront the Scheme in thenext century as a consequence of the changingdemographics of the population. Barbados is notalone in facing these problems^ as most SocialSecurity Schemes across the world have been orare grappling with similar difficulties.

The international responses to the so-calledold age crisis has been varied, but there is anemerging consensus that a three tier system isprobably the optimum solution.

The tiered or multi-pillar system iscomprised of a mandatory tax-financed firstpillar broadly based, providing a social safetynet for the old, particularly those in the lowestincome group. The second tier is also mandatorywith contribution by both employer andemployee, while the third tier is voluntary,offering supplemental income in retirement topersons desiring more generous pensions.

Our system of social insurance may be said,to be multi-pillar. The non-contributory old agepension is a flat rate one that increasingly in thenew century will be funded on a pay as you gobasis from tax revenue, given the decision

r •

announced in last year's budget. You will recallthat with effect from September 28, 1998, allincreases of non-contributory pensions are beingpaid from the Treasury and also all new non-contributory pensions from January next yearwill be paid from theTreasury and not from theN.I.S, to ease the strain on N.I.S resources.

While these measures will relieve some ofthe pressure on what may be said to be oursecond pillar contributory pension element, theyare not enough! The Ninth Actuarial Review ofthe Scheme identified some of .the optionsavailable to us if we do not want to be facedwith contribution rates in excess of 20% by thethird decade of the new century.

These options offered by the Review involve:

(a) Raising the retirement age from 65;

(b) Basing contributory pensions onaverage lifetime earnings rather thanon the average of the best three years;and

(c) Extending the qualifying period for apension from 10 years to 20 years.

I feel that there is much merit in theseproposals.

Our third pillar, Mr. Speaker, is representedby the various instruments we have put in placeto facilitate pension savings generally andespecially savings for retirement.

To facilitate the development of privatepensions and pension fund managers, modernpension legislation is being put in place. Afterlengthy discussions among the variousstakeholders, draft legislation is now availableand will come before this Parliament in the newyear. It is of interest to note in this context, Mr.Speaker, that some members of the public haverequested that the National Insurance Act beamended to permit it to hold voluntarycontributions to boost persons' retirementbenefits. This represents a departure from thetrend towards privatisation and perhaps is

indicative of the cultural nuances one has to takeinto consideration irt reforming social insuranceschemes.

With respect to public sector pensions, Mr.Speaker, earlier this month the Governmententered into an agreement with the Inter-American Development Bank fora locally basedactuarial firm to determine the financial viabilityof the public sector pension system. The studywill also investigate alternative fundingmechanisms.

The results of the exercise will be availableearly in the new year. It is expected that thestudy will allow us to plan properly to meet theincreasing burden of public sector pensionexpenses which currently are estimated at 2.5%of the country's gross domestic product.

Our approach therefore to resolving thectisis ofproviding income support for an agingpopulation may be seen, Mr. Speaker, ascomprising three elements. One aspect relates toputting government in a position to sustain itsresponsibilities not only towards its employees,but also to all those citizens not entitled to anoccupational pension. A second aspect dealswith the various instruments made and beingmade available to encourage voluntary savingsand the regulation of the environment forprivate pensions. The third and, perhaps themost critical at this juncture, is ensuring thefuture sustainability of the National InsuranceScheme. I am strongly disposed towards thethree options cited earlier.

But my administration holds the view thatany fundamental reform of the Scheme shouldinvolve consultations with the entire communityof contributors and beneficiaries. Towards thisend, the National Insurance Board has set up asub-committee under the chairmanship of itsDeputy Chairman, Mr. Stephen Alleyne, toexamine the options suggested by the lastactuarial review, to stimulate public discussionon the issues, and to make recommendations onthe reforms to be implemented. Indeed thediscussion and public education process hasalready commenced.

In addition, the 10th Actuarial Review of the

Scheme for the triennium ending December,1999, shall shortly be undertaken. Theopportunity will be taken to look at the financialimpact of the changes made in September, 1998and to obtain detailed costings on the reformoptions identified in the 9th review.

In the circumstances, Mr. Speaker, I do notpropose to introduce any further changes to oursocial insurance system at this time. However,it was necessary for me to enjoin everyone inthe discussion of the issues and reform optionsand I shall expect to be in a position next year toreturn to this subject with very clearly definitiveproposals.

Taxation

Value Added Tax

The Value Added Tax Office continues to be

bedevilled by claims that the refund process istoo slow. The office agrees that the process isnot as expeditious as desired and therefore anumber of changes in staffing and strategieshave been and are being taken to correct theproblem.

It is however my understanding that theoffice still continues to be plagued by a highnumber of faulty claims. Indeed, Mr. speaker,the evidence suggests that a number of personsare not declaring all their sales while at the sametime declaring all purchases. Companies havefiled applications for refunds amounting tohundreds of thousands of dollars only for auditsto reveal that greater sums are in fact owed astax.

As I noted earlier, Mr. Speaker, action isbeing taken to improve the administration of theVAT office. A management audit of thedepartment has been conducted and remedialaction is already being taken. In addition, staffof the Management Accounting Unit of theMinistry of Finance will shortly be assigned toassist with the implementation of the correctivemeasures identified by the audit.

However, Mr. Speaker, a critical aspect ofthe remedial work has to be a.more focused andpro-active strategy to collect the $40 millionoutstanding in Value Added Taxes. I am awarethat notwithstanding that court judgementshave been filed against them, the delinquentregistrants have refused to settle their arrears.

This, Mr. Speaker is an untenable situationand the Department has been directed to usethe full provisions of the VAT Act to ensurecollection of all outstanding sums. I will notallow the build up of arrears of VAT as occurredwith the Consumption Tax.

In the years ahead, we face the prospects ofan erosion of our tax base as we bring toaccount the adjustments required of us to meetregional and international obligations.

I have indicated that I will progressivelyreduce the level of taxes on energy products.Our participation in the Caricom scheme for taxharmonisation will also entail that in the verynear future, the Corporation Tax Rate inBarbados will have to be reduced to bring it inline with regional standards. Over the mediumterm, import duties will be substantiallyreduced, as we give effect particularly to newinternational trade agreements.

The VAT was conceived of as a broad-based

tax to maintain revenue buoyancy as we makethese other adjustments.

The Government therefore will substantiallyimprove the administration of the VAT toensure that it does not impose cash flowburdens on the public. We are however, allthings considered, not in a position to vary therates nor the base of the tax.

Reform of Taxes on Property

This country, in restructuring itself after thedebacle of the early years of this decade,identified tax reform as crucial to that process.Though the*process began with the reform ofthe direct tax system, it was acknowledged that

our successful march to become a moderncompetitive economy also required a revampingof our vastly complex system of indirect taxes.Action in this regard led to the introduction inJanuary, 1997 of the Value Added Tax and thesimultaneous abolition of eleven (11) otherindirect taxes.

As a consequence, Mr. Speaker, the oneremaining area left to be tackled is taxes onproperty. I have no doubt. Sir, that you willrecall that last year when I addressed this issueof land, I alluded to the emotions which itseemed to evoke among all Barbadians. Indeed,because of the climate of opinion at the time, theParliament established a Select Committee of itsmembers to inquire into aspects of the issue.That committee has submitted its report and Ishallspeakabout the recommendations madeinthe report later.

Our approach to the reform of propertytaxes is the same as that adopted in respect ofthe reform of other taxes. The intention is tosimplify their structure, assist in keeping theunavoidable costs involved in doing business inthis country at reasonable levels, and ensuring,in particular, theinterests of themost vulnerableofour society are protected. Wealso believe thatthe reform of the taxes on property should bedesigned to remove any distortionary effectsthey presently have oninvestment decision andactivities.

Property Transfer Tax

While speaking on the issue of PropertyTransfer Tax last year, I noted that aParliamentary Committee was then examiningissues relating to the sale .of land to non-nationals, but indicated there was a concernabout revenue loss on the transfer of propertythrough external companies which had to beaddressed. The legislation to deal with thismatter was drafted but then held pending areview of the several recommendationscontained in the Report of the SelectCommitteeof Parliament on Ownership of Land Interest inBarbados.

I wish at the. outset, Mr. Speaker, tocommend you, as Chairman, and the othermembers of the Committee for a'job well done.I shall be using the recommendations of theCommittee as the basis for my proposals on theProperty Transfer Tax Act.

It is of interest to npte, Mr. Speaker, that theCommittee, having considered all theinformation made available to it, concluded that:

(a) "....the evidence does not support theperception that there are tracks oflandin Barbados which are owned by non-nationals but rather that non-residentnationals own a large number of lots ofland in Barbados";

(b) "....foreign ownership of land does noharm to the economy and thatBarbadians are not beingdispossessed"; and

(c) "there was no need to restrictownership by non-nationals at thepresent time".

The Committee, however, made theobservation that the evidence presented to itrevealed widespread avoidance of PropertyTransfer Tax. It therefore maderecommendations to prevent such practices andit is largely on these that I have based some ofthe proposals I will announce.

Beyond the recommendations made by thespecial Committee, it has been represented thatthe Property Transfer Tax works a hardship bythe requirement that it has to be paid bypurchasers at the time of the initial purchase ofproperty. This has in fact impacted adversely onthe feasibility of many projects, thus requiringthe need for discretionary waivers by theMinistry of Finance.

I judge therefore that the Property TransferTax regime needstobemodified tominimise theneed for discretionarywaivers, and its abuse byexternal companies. We will in fact create asimpler, more transparent system that can

readily be viewed as being a more efficient andequitable method of collecting the tax.

Hence I propose to make two types ofadjustments, the first pertaining to theadministration of the tax, and the otherestablishing a new structure for its rates.

Administration Reform

Currently under a lease purchaseagreement no property transfer tax ispayable on the exercise of the option topurchase. Tax is paid only on theannual rental value. Property TransferTax will now be payable on theexercise of the option to purchase atthe same rate as on the conveyance;

the penalty for an offence underSection 14of the Property Transfer TaxAct is increased from a fine of $1000 orto imprisonment for 3 months or bothto a fine of $10,000 or to imprisonmentfor 12 months or both;

(3) the penalties imposed under Section 18of the said Act shall be increased as

follows;

(i) for willfully, or knowingly ornegligently making any false ordeceptive statement or givingany false or deceptiveinformation, a fine of not lessthan $5000 and not more than

$10 000 and/or imprisonmentnot exceeding 12 months. Thecurrent fines are not less than

$250 and not more than $5000and the term of imprisonment 3months; and

(ii) for aiding, abetting, counselling,inciting, conspiring with theperson referred to at (i) above, afine of $5000 or imprisonment of

12 months. The existing fine is$500 and- the term ofimprisonment 3 months; and

(4) the Companies Act shall be amendedto provide for compulsory disclosure ofthe beneficial ownership of shares ofcompanies that own land in Barbados.

Rate Structure

1. At present the exemption thresholdbefore which property tax is exigibleona land transaction is $25,000. I proposeto raise that threshold to $125,000. Soproperty transfer tax does not nowbecome payable before values of$125,000.

2. Property Transfer Tax is also nowpayable by both the purchaser andvendor; and I believe that to requirethe purchaser to pay the tax works ahardship. The property tax payable bythe purchaser is hereby abolished.

3. The tax shall now be payable only bythe vendor in all transactions at the

rate of 10% of the amount or value of

the consideration for sale or other

disposition of the property.

These proposals become effective from 1stSeptember, 1999.

Land Tax

Last year, Mr. Speaker, provision was madeto extinguish the claims of the Government fortaxes owed for the three triennial periodsbetween 1972 and 1981. The sum involved was

relatively insignificant and the deficiencies inour records suggested that the write-off was thebest decision in the circumstances. Provision

was made also for a waiver of interest and

penalties onputstanding taxes on condition thatpayment is effected before September 3, 1999.All persons in arrears, Mr. Speaker, are advised

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to settle their indebtedness within this period,as the Commissioner of Land Tax shallthereafter be using all the resources available tohim to ensure that the outstanding sums arecollected.

I also spoke last year about the newtriennium valuation exercise for the periodApril, 1999 to March, 2002 and I gave acommitment that the rates would be reviewedonce the new valuations had been determined toensure that the average Barbadian home owneris not unduly disadvantaged by the resultantrise in the value of his or her home.

It is my understanding, Mr. Speaker, that onaveragevalues have increasedby approximately15%. This evening, I therefore propose tointroduce measures with respect to thecommitment given last year while addressingthe issue of reform of the land tax.

Mr. Speaker, at present, the valuation ofproperty for tax purposes is a model ofunnecessary complexity. In the case ofresidences, the tax is levied, not on theimproved value, but only on 70% of it as aninitial allowance of 30% is granted. Thisallowance is presently 50% for pensioneroccupied properties.

The tax is then applied, Mr. Speaker, on atwo-tier basis for both of these categories withthe rate being 0.3% on the first $100,000 of thevalue of the property and 0.8% on the value inexcess of $100,000. Where the property isneither owner nor pensioner occupied, the rateof tax is 0.8% on the full taxable value.Unimproved property attracts this same rate oftax, as do properties under agriculturalcultivation, as well as hotels and apartmenthotels.

The present system has been cumbersometoadminister and opened to abuse. Moreover, it isour view that an owner who rents a property isin fact assisting in alleviating the shortage ofaccommodation and should therefore not bepenalised by being taxed at a higher rate.

I therefore propose, Mr. Speaker, toeliminate the owner, pensipner occupiedresidence distinction and treat all residencessimilarly.

The new tax structure for residentialproperties, Mr. Speaker, shall be a simple three-tiered system comprised as follows:

(i) a rate of 0.20% on the first $200,000 orpart thereofof the improved value;

(ii) a rate of 0.70% on the next $300,000 orpart thereof ofthe improved value; and

(iii) a rate of 1.20% on the improved valuein excess of $500,000.

I also propose, Mr. Speaker, to tax chattelhouseproperties at the newresidential rates. Atthe moment, these properties are taxed on theirsite value and attract a higher rate of tax. Forexample, a chattel house valued at $40,000 onland valued at $15,000 pays tax of $120 at therate of 0.80% on the value of the land. Underthe new system the tax payable on the totalvalue of chattel and land of $55,000 would be$110.00, a reduction of $10.00.

These proposals will result in a reduction intaxes payable on all properties valued at$300,000 or less in Barbados as follows:

Improved Value

40,000

100,000

150,000

200,000

250,000

300,000

Old Taxes New Taxes

210.00

340.00

620.00

900.00

1 180.00

200.00

300.00

400.00

750.00

1 100.00

The Government has discharged itsobligation to assist the most vulnerable in thesociety in restructuring the land tax. Propertiesother than residences will now attract tax ontheir improved value at the rate of 0.70%,instead of the old rate of 0.80%. However,

vacant lands, will continue toattract the existingrate of 0.8%. The existing system of rebates foragriculture and hotel properties will continue.Hotels including apartment hotels will havetheir taxes calculated on 50% of the improvedvalue of the land while qualifying agriculturalholdings will now pay tax at the rate of 0.2%,rather than at the rate of 0.3%.

Iwish to emphasize, Mr. Speaker, that thosepersons, who have concerns with the valuesassigned to their properties in the recentrevaluation exercise, should exercise their rightof appeal under the Land Valuation ActCap.229A to the Land Valuation Board. Allother persons with genuine cases of hardshipmay seek assistance from the Land Tax ReliefBoard.

It has been estimated, Mr. Speaker, that,based on the valuations for the new triennium,the old rates of taxes would have yielded $80.7million in revenue. The new rates will beeffective from this land tax year and willproduce $61.9 million in land taxes, some $18.8million dollars less than the system it replaces.

Summary of Economic Impact

The menu of measures which I have

introduced to this House have been carefullydesigned to strengthen the foundations uponwhich our economy compete in the region andinternationally economy, improve the climate forinvestment, spur the creation of new activity inour trade sectors and provide some relief tohomeowners.

While some of the measures will expand therevenue of the Treasury, on balance thesemeasures in themselves will result in a net

decrease in our revenue.

The resulting structural changes which thesemeasures are likely to bring about in oureconomy are likely to have such a positive

1

aJ <

impact that I do'not propose to raise other taxesto finance them.

In any event, the amounts owed in the formof the VAT and Land Tax are so ample thatimproved collection of arrears will more thanoffset the cost of these proposals without myhaving to impose new or higher rates of taxeson those law abiding citizens who are not inarrears.

I have also said enough to indicate that tomake this economy fully competitive regionallyand internationally other fiscal and economicadjustments will be necessary in the yearsimmediately ahead.

This budget is the first instalment ofbudgeting as it will be in the 21st century.

Much as we are anxious to move to the new

century, we should be mindful to carry with ussome of the best practices of the 20th century.

In that respect, 1 would wish to remind allconcerned with the public sector wagenegotiations of the Social Contract and itsprovisions that state that wage and incomesettlements should bear some resemblance tothe requirements of maintaining fiscal disciplineand promoting the competitive advantage of theBarbados economy.

Speaking on other wage related mattersoutside the context of those negotiations, 1muststate that the Government will not support thecall which was issued from a trade union

quarter recently to return our severancepayment arrangements to their pre 1992character.

We have come too far, at the price of toomuch sacrifice to return to apparently popularbut unsound policies which have not even theremote possibility of dealing with our realities.

CONCLUSION

Mr. Speaker, Ecclesiasticus tells us:

"There are some of them who have left aname,

So that men declare their praiseTheir prosperity will remain with theirdescendants.

And their inheritance to their children'schildren ".

At the outset of this presentation, I alluded tothe remarkable legacy that has been left to us byour fathers in their generation.

Our nation will greet a new century as theleading society in the developing world. It is afantastic achievement. The road ahead howeverwill not always be easy.

We will live in a world which does not feelthat it owes us a living. But Ecclesiasticus tellsus also that we must stand by our covenants.

And one of the great covenants of thisBarbadian society is that at every criticaljuncture in our development we have neverbeen lacking in the will and the imagination togo bravely forward, whatever the odds.

I suggest to you and this HonourableParliament that we are at one such criticaljuncture.

We can now go forward from being theleading developing society to become theworld's smallest developed society.

We must settle fpr no less. And that is whatthis Budget has been about.

It is in the hope, Sir, again using the wordsof Ecclesiasticus that "their prosperity willcontinue for ever", that I commend this Budgetto this Parliament and beg leave to move thefollowing Resolution.

WHEREAS the Barbados Economy hasrealised its sixth yearofstrongeconomic growthand development;

AND WHEREAS the sustained strongperformance of the economy has led tosubstantial improvement in unemployment andhas provided the opportunity for the pursuit ofpolicies to eradicate poverty and to improve thegeneral standard of living for all:

AND WHEREAS the Government hasdeveloped a strategy and a set of policies toenable Barbados to enhance its competitivenessin the new global setting in the 21st Century.

BE IT RESOLVED THAT this HonourableHouse congratulate the Government highly forits outstanding management of the economic,fiscal and social affairs of this country.

AND BE IT FURTHER RESOLVED THATthis Honourable House endorse the strategyand policies outlined by Government to fullydevelop the Barbados society in the nextcentury.

I am obliged to you. Sir.