Prime Minister Briceño: ‘We will not propose any new revenue measures’
Speaking in an eleven-minute New Year’s message, Belize Prime Minister Hon. John Briceño announced that his government “will not propose any new revenue measures” at the first House of Representatives’ working session to be held since the formation of the new administration.
The seven-word announcement is likely to serve as an important signal to the general public and the private sector, which both had to contend with revenue measures introduced in Fiscal Year 2017/18, when several taxes and fees were increased as part of a packaged set of efforts aimed at helping the government achieve a minimum primary surplus of 2% of Gross Domestic Product (GDP).
As the International Monetary Fund (IMF)’s Article IV report for that year outlined, “Parliament had passed several revenue-enhancing measures, including (i) higher excises on fuel, beer, sugary drinks, and construction materials; (ii) higher import duties on selected products, including cigarettes; (iii) an increase in an environmental tax … and (iv) adjustments in the General Sales Tax (GST), including lowering the social exemption for household electricity use.”
The excise tax adjustment on beer had one of the more newsworthy impacts, as the Statistical Institute of Belize (SIB) attributed the Quarter Three and Four declines in sales directly to the revenue measure. For the Fourth Quarter, for instance, the SIB had written: “Beer production was down by 6.4 percent from 670 thousand gallons in the final quarter of 2016 to 627 thousand gallons for the same period of 2017, in response to lowered demand following last year’s increase in excise duty.”
However, for context, it is worth recalling that those increases anchored the previous administration’s “agreement with the private external bondholders”. As the Article IV for that year likewise summarized, the authorities had “committed to bondholders to tighten the fiscal stance by 3 percentage points in FY2017/18, and to maintain a primary surplus of 2 percent of GDP for the subsequent three years.”
According to the Central Bank of Belize, the primary surplus target was part of the restructuring deal with private holders of Belize’s US-Dollar Bond, who in turn agreed, inter alia, to the bond’s principal payments commencing on February 20, 2030 as opposed to August 20, 2019. The bondholders also agreed for the interest rate on the bond to be fixed at 4.9375%, thereby, avoiding the scheduled August 2017 interest-rate step-up to 6.767%. The agreed terms, as elucidated by the IMF, resulted in an “estimated net present value reduction of 28 percent.” The Fund added that while the deal provided “important cash flow relief”, it noted that the local authorities recognized “that repeated restructurings carry a reputational cost”.
Nevertheless, the backdrop of the previous revenue measures being what it is, the Belizean private sector is likely to view the announcement favorably, as any increase would have been unwelcome given the recessionary times brought about by the necessary, global response to the COVID-19 pandemic. For the first nine months of 2020, the Belizean economy is estimated to have contracted by 14.4%; therefore, conventional economic thinking would naturally have cautioned against any contractionary fiscal policy, despite the almost 30% drop in tax revenues that have been reported since the start of the present fiscal year.
Notably, the unique circumstances created by the pandemic-induced recession have also made it challenging for the new administration to pursue expansionary fiscal policy via the likes of tax reductions given the aforementioned drop in tax receipts.
In his New Year’s message, PM Briceño alluded to “major changes” that are required in 2021 to place the government’s finances on a sustainable path. “We have been carefully reviewing the Government’s financial position. It is fragile and unsustainable,” he said. “It is clear to return Belize to a path of sustainability major changes will be required in 2021.”
It is not clear what those changes are, but the Prime Minister spoke to a “plan” that his administration will be sharing with stakeholders. “We intend to consult widely with a view to agreeing to a set of measures required to turn things around.”