Identifier
Created
Classification
Origin
06BRIDGETOWN178
2006-01-27 18:12:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Bridgetown
Cable title:
BARBADOS BUDGET - PM PLEDGES TAX CUTS AND ENERGY
how-toVZCZCXRO4689 PP RUEHGR DE RUEHWN #0178/01 0271812 ZNR UUUUU ZZH P 271812Z JAN 06 FM AMEMBASSY BRIDGETOWN TO RUEHC/SECSTATE WASHDC PRIORITY 1750 INFO RUCNCOM/EC CARICOM COLLECTIVE PRIORITY RUEHDG/AMEMBASSY SANTO DOMINGO PRIORITY 5786 RUEHCV/USDAO CARACAS VE PRIORITY RUMIAAA/HQ USSOUTHCOM J2 MIAMI FL PRIORITY RUMIAAA/HQ USSOUTHCOM J5 MIAMI FL PRIORITY RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
UNCLAS SECTION 01 OF 03 BRIDGETOWN 000178
SIPDIS
SENSITIVE
SIPDIS
SANTO DOMINGO FOR FCS
TREASURY FOR FRANSICSO PARODI
SOUTHCOM ALSO FOR POLAD
E.O. 12958: N/A
TAGS: ECON EFIN ETRD EIND ECPS SENV ENRG PINR BB
SUBJECT: BARBADOS BUDGET - PM PLEDGES TAX CUTS AND ENERGY
SAVINGS
REF: 05 BRIDGETOWN 149
UNCLAS SECTION 01 OF 03 BRIDGETOWN 000178
SIPDIS
SENSITIVE
SIPDIS
SANTO DOMINGO FOR FCS
TREASURY FOR FRANSICSO PARODI
SOUTHCOM ALSO FOR POLAD
E.O. 12958: N/A
TAGS: ECON EFIN ETRD EIND ECPS SENV ENRG PINR BB
SUBJECT: BARBADOS BUDGET - PM PLEDGES TAX CUTS AND ENERGY
SAVINGS
REF: 05 BRIDGETOWN 149
1. (SBU) Summary: Barbados Prime Minister Owen Arthur
presented his government's 2006 economic and financial
policies in a January 16 speech to parliament. PM Arthur
pledged to lower energy costs, cut taxes, boost pensions, and
prop up manufacturing. Most of the budget seems practical
and will not greatly increase the country's debt (around 88.0
percent of GDP). The only major imprudent expenditure is a
US$150 million investment into the island's unprofitable
sugar industry. End Summary.
2. (U) In front of the full parliament and a packed gallery
(EconOff and PolOff attended),Prime Minister Owen Arthur
delivered a two and a half hour speech outlining his
government's economic and financial policies for 2006. With
the parliamentary opposition in disarray (septel),a
confident PM Arthur announced tax cuts, incentives to reduce
energy costs, increased government investment in the sugar
industry, loosened foreign exchange controls, and investment
incentives. He also promised to increase subsidies to dairy
farmers, improve education, better manage the risks of
natural disasters, and prepare the nation for Cricket World
Cup 2007.
--------------
2005 Economic Performance
--------------
3. (U) Arthur began his speech with good news on the
country's 2005 economic performance. Gross Domestic Product
(GDP) grew by 4.1 percent, compared to 4.8 percent in 2004.
Inflation was 4.0 percent, up from 1.7 percent in 2004, and
unemployment reached a record low of 8.5 percent. The
country's growth is remarkable because the economy expanded
despite a drop in tourism. Cruise ship arrivals slid around
20.0 percent from 534,136 in 2004 to 425,933 in 2005 (January
- October figures),while long stay visitor numbers stayed
more or less constant. Sugar, manufacturing, and
construction output rose 10.3 percent, 3.0 percent, and 17.6
percent, respectively. Exports and domestic investment also
grew, while foreign exchange reserves slightly increased - in
contrast to the sharp drop in reserves in 2004.
--------------
Government Finances
--------------
4. (U) Barbados has prudently kept its government spending in
check over the past few years, and Arthur said the fiscal
deficit for the 2005-2006 fiscal year (ending in March 2006)
will likely be just 1.7 percent of GDP, less than the target
of 2.5 percent of GDP. Total government spending is US$1.04
billion, or around 33.0 percent of GDP.
--------------
Tax Cuts
--------------
5. (U) Currently, Barbadians making less than US$10,000 per
year pay no income tax. PM Arthur proposed raising this
threshold to US$11,250, meaning an additional 6,159 citizens
would pay no income tax. This politically savvy measure will
probably only cost the government US$2-3 million, while
exempting an additional 2.0 percent of the population from
income taxes. Arthur also proposed several other tax cuts,
including reduced income taxes for international
businesspeople and a reduction in property taxes. The Prime
Minister introduced a temporary tax on non-CARICOM imports in
September 2005, and he plans to raise this tax from 3.0 to
6.0 percent to help curb imports and pay for the tax cuts.
--------------
Energy Savings
--------------
6. (SBU) As one of two Caribbean leaders (PM Patrick Manning
in Trinidad is the other) to publicly reject Venezuela's
PetroCaribe concessionary oil financing offer, PM Arthur
faces pressure to reduce his country's nearly US$200 million
BRIDGETOWN 00000178 002 OF 003
annual fuel import bill. His solution is a slew of tax
incentives on everything from diesel cars to fluorescent
bulbs to home energy audits. In addition, the government
plans to increase domestic oil production by 50.0 percent (up
from 1,000 to 1,500 barrels per day) and use more natural
gas. Arthur announced that the electric company, Barbados
Light and Power, will construct a wind farm capable of
producing 26 million kilowatt hours (KWh) of electricity
annually, and a sugar cane-powered 30 megawatt plant (see
paragraph 8).
--------------
BioNote - PM Arthur
--------------
7. (SBU) According to a senior Bajan official, PM Arthur, an
economist by training, cloisters himself away from his office
for several weeks to focus on the national budget, even
refusing to meet high level visitors. (Note: General
Craddock of SOUTHCOM visited during Arthur's budget
preparations and the Prime Minister declined to meet with the
General. End Note.)
8. (SBU) At the Embassy's Martin Luther King Jr. reception,
Dr. Marion Williams, Governor of the Central Bank, hinted to
EconOff that she did not agree with many of the Prime
Minister's measures to liberalize foreign exchange controls.
(Comment: Unlike the Federal Reserve in the United States,
the Central Bank of Barbados is not independent from
political control. If this private difference of opinion
results in public sparring, the opposition could use the
well-respected Central Bank Governor's words to cast doubt on
the sagacity of the Prime Minister's economic policies. End
Comment.)
--------------
Wasting Money on Sugar
--------------
9. (U) PM Arthur announced plans for a US$150 million
facility including a 30 megawatt power plant and sugar cane
processing facilities to annually produce 12,000 tons of
refined sugar for the domestic market, 10,000 tons of
specialty sugar for the export market, 5,000 tons of
specialty sugar for the local market, and 14 million liters
of ethanol for the domestic market. The Prime Minister has
presented the facility, scheduled for completion in 2008, as
the salvation of the local sugar industry, now that the
European Union is dropping its subsidized sugar price by 36.0
percent over the next two years, from 523.7 Euros/ton to 335
Euros/ton. Even at 523.7 Euros/ton, Barbados loses money on
every ton of sugar it exports. According to Erskine
Griffith, the Barbados Minister of Agriculture, the Barbados
yield ratio of 21 tons of sugar per acre of sugar cane is,
"the lowest of any sugar producing nation." Griffith went on
to say that producers in Brazil get up to 80 tons per acre.
10. (U) The sugar for the local market is to be called
"Muscovado Gold" and will retail for US$1.46 per kg, compared
to US$.77 for imported sugar (usually from Guyana). (Note:
Guyanese sugar products are also imported in large quantities
to produce "Barbadian" rum. End Note.) Barbados cannot
protect its local sugar market from CARICOM competition,
given the free movement of goods provisions of the CARICOM
Single Market and Economy. The government apparently will
depend on nationalism to induce people to pay twice as much
for local sugar as imported sugar.
--------------
Comment
--------------
11. (SBU) This massive investment in the sugar industry
defies logic and sours an otherwise prudent budget. The cost
of producing sugar on a small island with high labor costs
and limited mechanization is astronomically higher than in
Brazil or other major sugar producers. Barbados is probably
one of the least efficient sugar producers in the world and
cannot compete within CARICOM, much less on the world market.
BRIDGETOWN 00000178 003 OF 003
Instead of exporting bulk sugar to the European Union at
inflated prices, Barbados will be selling its sugar
domestically at inflated prices. Sugar is so intrinsic to
their national identity, however, that Barbadian taxpayers
apparently support this fiscal profligacy.
12. (SBU) The true purpose of the US$150 million investment
is not to protect the environment or to reduce energy costs,
but to give sugar a future. If Barbados were serious about
protecting the environment and reducing its energy import
bill, then the country could more cheaply accomplish both
these goals by importing sugar cane ethanol from Brazil. No
matter what use for sugar cane Barbados comes up with, almost
every other sugar producing country can grow it cheaper,
harvest it cheaper, and process it cheaper. Instead of
pouring more money into sugar, the Government of Barbados
would be better served letting the industry die a peaceful
death, as St. Kitts did in 2005. End Comment.
KRAMER
SIPDIS
SENSITIVE
SIPDIS
SANTO DOMINGO FOR FCS
TREASURY FOR FRANSICSO PARODI
SOUTHCOM ALSO FOR POLAD
E.O. 12958: N/A
TAGS: ECON EFIN ETRD EIND ECPS SENV ENRG PINR BB
SUBJECT: BARBADOS BUDGET - PM PLEDGES TAX CUTS AND ENERGY
SAVINGS
REF: 05 BRIDGETOWN 149
1. (SBU) Summary: Barbados Prime Minister Owen Arthur
presented his government's 2006 economic and financial
policies in a January 16 speech to parliament. PM Arthur
pledged to lower energy costs, cut taxes, boost pensions, and
prop up manufacturing. Most of the budget seems practical
and will not greatly increase the country's debt (around 88.0
percent of GDP). The only major imprudent expenditure is a
US$150 million investment into the island's unprofitable
sugar industry. End Summary.
2. (U) In front of the full parliament and a packed gallery
(EconOff and PolOff attended),Prime Minister Owen Arthur
delivered a two and a half hour speech outlining his
government's economic and financial policies for 2006. With
the parliamentary opposition in disarray (septel),a
confident PM Arthur announced tax cuts, incentives to reduce
energy costs, increased government investment in the sugar
industry, loosened foreign exchange controls, and investment
incentives. He also promised to increase subsidies to dairy
farmers, improve education, better manage the risks of
natural disasters, and prepare the nation for Cricket World
Cup 2007.
--------------
2005 Economic Performance
--------------
3. (U) Arthur began his speech with good news on the
country's 2005 economic performance. Gross Domestic Product
(GDP) grew by 4.1 percent, compared to 4.8 percent in 2004.
Inflation was 4.0 percent, up from 1.7 percent in 2004, and
unemployment reached a record low of 8.5 percent. The
country's growth is remarkable because the economy expanded
despite a drop in tourism. Cruise ship arrivals slid around
20.0 percent from 534,136 in 2004 to 425,933 in 2005 (January
- October figures),while long stay visitor numbers stayed
more or less constant. Sugar, manufacturing, and
construction output rose 10.3 percent, 3.0 percent, and 17.6
percent, respectively. Exports and domestic investment also
grew, while foreign exchange reserves slightly increased - in
contrast to the sharp drop in reserves in 2004.
--------------
Government Finances
--------------
4. (U) Barbados has prudently kept its government spending in
check over the past few years, and Arthur said the fiscal
deficit for the 2005-2006 fiscal year (ending in March 2006)
will likely be just 1.7 percent of GDP, less than the target
of 2.5 percent of GDP. Total government spending is US$1.04
billion, or around 33.0 percent of GDP.
--------------
Tax Cuts
--------------
5. (U) Currently, Barbadians making less than US$10,000 per
year pay no income tax. PM Arthur proposed raising this
threshold to US$11,250, meaning an additional 6,159 citizens
would pay no income tax. This politically savvy measure will
probably only cost the government US$2-3 million, while
exempting an additional 2.0 percent of the population from
income taxes. Arthur also proposed several other tax cuts,
including reduced income taxes for international
businesspeople and a reduction in property taxes. The Prime
Minister introduced a temporary tax on non-CARICOM imports in
September 2005, and he plans to raise this tax from 3.0 to
6.0 percent to help curb imports and pay for the tax cuts.
--------------
Energy Savings
--------------
6. (SBU) As one of two Caribbean leaders (PM Patrick Manning
in Trinidad is the other) to publicly reject Venezuela's
PetroCaribe concessionary oil financing offer, PM Arthur
faces pressure to reduce his country's nearly US$200 million
BRIDGETOWN 00000178 002 OF 003
annual fuel import bill. His solution is a slew of tax
incentives on everything from diesel cars to fluorescent
bulbs to home energy audits. In addition, the government
plans to increase domestic oil production by 50.0 percent (up
from 1,000 to 1,500 barrels per day) and use more natural
gas. Arthur announced that the electric company, Barbados
Light and Power, will construct a wind farm capable of
producing 26 million kilowatt hours (KWh) of electricity
annually, and a sugar cane-powered 30 megawatt plant (see
paragraph 8).
--------------
BioNote - PM Arthur
--------------
7. (SBU) According to a senior Bajan official, PM Arthur, an
economist by training, cloisters himself away from his office
for several weeks to focus on the national budget, even
refusing to meet high level visitors. (Note: General
Craddock of SOUTHCOM visited during Arthur's budget
preparations and the Prime Minister declined to meet with the
General. End Note.)
8. (SBU) At the Embassy's Martin Luther King Jr. reception,
Dr. Marion Williams, Governor of the Central Bank, hinted to
EconOff that she did not agree with many of the Prime
Minister's measures to liberalize foreign exchange controls.
(Comment: Unlike the Federal Reserve in the United States,
the Central Bank of Barbados is not independent from
political control. If this private difference of opinion
results in public sparring, the opposition could use the
well-respected Central Bank Governor's words to cast doubt on
the sagacity of the Prime Minister's economic policies. End
Comment.)
--------------
Wasting Money on Sugar
--------------
9. (U) PM Arthur announced plans for a US$150 million
facility including a 30 megawatt power plant and sugar cane
processing facilities to annually produce 12,000 tons of
refined sugar for the domestic market, 10,000 tons of
specialty sugar for the export market, 5,000 tons of
specialty sugar for the local market, and 14 million liters
of ethanol for the domestic market. The Prime Minister has
presented the facility, scheduled for completion in 2008, as
the salvation of the local sugar industry, now that the
European Union is dropping its subsidized sugar price by 36.0
percent over the next two years, from 523.7 Euros/ton to 335
Euros/ton. Even at 523.7 Euros/ton, Barbados loses money on
every ton of sugar it exports. According to Erskine
Griffith, the Barbados Minister of Agriculture, the Barbados
yield ratio of 21 tons of sugar per acre of sugar cane is,
"the lowest of any sugar producing nation." Griffith went on
to say that producers in Brazil get up to 80 tons per acre.
10. (U) The sugar for the local market is to be called
"Muscovado Gold" and will retail for US$1.46 per kg, compared
to US$.77 for imported sugar (usually from Guyana). (Note:
Guyanese sugar products are also imported in large quantities
to produce "Barbadian" rum. End Note.) Barbados cannot
protect its local sugar market from CARICOM competition,
given the free movement of goods provisions of the CARICOM
Single Market and Economy. The government apparently will
depend on nationalism to induce people to pay twice as much
for local sugar as imported sugar.
--------------
Comment
--------------
11. (SBU) This massive investment in the sugar industry
defies logic and sours an otherwise prudent budget. The cost
of producing sugar on a small island with high labor costs
and limited mechanization is astronomically higher than in
Brazil or other major sugar producers. Barbados is probably
one of the least efficient sugar producers in the world and
cannot compete within CARICOM, much less on the world market.
BRIDGETOWN 00000178 003 OF 003
Instead of exporting bulk sugar to the European Union at
inflated prices, Barbados will be selling its sugar
domestically at inflated prices. Sugar is so intrinsic to
their national identity, however, that Barbadian taxpayers
apparently support this fiscal profligacy.
12. (SBU) The true purpose of the US$150 million investment
is not to protect the environment or to reduce energy costs,
but to give sugar a future. If Barbados were serious about
protecting the environment and reducing its energy import
bill, then the country could more cheaply accomplish both
these goals by importing sugar cane ethanol from Brazil. No
matter what use for sugar cane Barbados comes up with, almost
every other sugar producing country can grow it cheaper,
harvest it cheaper, and process it cheaper. Instead of
pouring more money into sugar, the Government of Barbados
would be better served letting the industry die a peaceful
death, as St. Kitts did in 2005. End Comment.
KRAMER