Prime Minister Philip Davis yesterday gave his first budget communication as prime minister and minister of finance.
Having become prime minister in September of last year, Davis gave a supplemental budget to realign the priorities of his administration within the confines of the existing budget.
He used that opportunity to lower the rate of value-added tax (VAT) effective at the halfway point in the fiscal year, and subsequently radically changed COVID-19 protocols.
Davis said this is his administration’s first real budget as he outlined “The way forward”.
For starters, though Davis boasted of a shrinking debt-to-GDP ratio, we are still far from out of the woods of deficit spending with $690 million in new borrowing announced and an $11 billion national debt burden.
The deficit for this fiscal year will still come in over $750 million; next year’s deficit is projected at over $560 million.
While deficit spending is necessary, given the ongoing worldwide recovery amid horrific inflationary pressures, we are still in the unsustainable position of borrowing money to service borrowing already undertaken.
This means that public debt payments are still crushingly high, but plans to direct tax arrears to sinking funds structured to retire future principal debt payments can ease pressure on government finances moving forward.
Additionally, the current administration has so far proven to be shrewd in its borrowing strategy.
Davis predicts a stark increase in VAT and other tax collections, outlining several measures to capture taxes from sectors that have previously proven to easily circumvent revenue collection efforts.
One such area is real property tax.
The Department of Inland Revenue is to be commended for asking homeowners to abide by the laws so many have flouted for so long, but there are also those who are not wealthy for whom a notable increase in property tax may force them into non-compliance, despite the initiative to have banks collect what is owed to government from mortgage holders.
However, the raising of the property tax exemption ceiling to homes worth up to $300,000 will be a small but welcome relief for many.
We commend the government for raising the ceiling on real property tax for homes worth $5 million or more.
The new $20 million threshold is suitable.
If you are unable to afford real property tax on a $20 million home, you are living in the wrong neighborhood.
Expenditure is also projected to increase, but not significantly.
The thrust of the Davis administration to finance infrastructure projects like hospitals and airports through public-private partnerships is a leap in the right direction.
However, we believe the Davis administration has fallen short of the mark of its repeated promises to bring down the cost of living.
An increase in the government minimum wage will not be that widespread and government workers are among the only in this country whom most lending institutions will pre-approve for credit.
A promised rise in the private sector minimum wage was not highlighted yesterday.
As far as “raises for public officers”, who that captures and how much they will be given was not made clear.
Food security is discussed in every budget.
But after many millions of taxpayer dollars invested in related industries over the past decades, we have hardly moved the dial.
We will wait to see if the announced efforts produce results.
The reduction of duty on roofing materials, plumbing materials and electrical supplies will be helpful to lower some construction costs, but as the government is powerless to stop the impact of inflation from the basic costs of these goods, the impact is not likely to make that large a dent in bloated construction budgets.
As for the $40,000 cash back for VAT paid for construction costs for those building or renovating their first home, if they can provide an occupancy certificate within 18 months, we believe this will prove to be a hellish nightmare that will cause more problems than it solves.
But we are willing to be proven wrong.
The increase in exemption for first-time homeowners and the reduction in VAT on property transfers below $1 million could spur much-needed economic activity in building and real estate-related sectors, which we hope will not be hampered by the doubtful aforementioned efforts.
There is still much analysis to be done on the budget, but the initial broad strokes appear to be well-meaning, and could possibly yield great success, even if it does not quite live up to the hype that preceded it.