Prime Minister Unveils New Budget Priorities

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* Essential to Move Debt to GDP Out of Danger Zone

* Room Tax and Departure Tax to Increase

* Duty Reduced on Several Energy-Efficient Items

* Ministry of Tourism & Aviation Budget Down Over $2 Million

Delivering a somber message of fiscal constraint, reduced Government expenditures and increases in taxes, Prime Minister The Right Honourable Hubert Ingraham described a series of cost reduction and revenue raising measures today, most which are planned to begin to take effect in July once the new budget is in place.

In his budget communication the Prime Minister stated "Accordingly, this budget begins to aggressively redress public finances now, by containing the growth of Government debt this coming year and beginning to move the debt-to-GDP ratio back to more prudent and desirable levels over the medium term.

"In 2009/10, almost 15 cents of every dollar of revenue will be siphoned off to pay interest on the debt, up sharply from under 10 cents before the economic crisis. Those are precious revenues that cannot be put to productive use in providing valuable services to our citizens. The Government debt will be about $3,510 million at the end of 2009/10, or 47.3 per cent of GDP." he added.

Measures which stand to have the greatest impact on tourism include an increase in the hotel room tax from six to ten percent and a five dollar increase per person in the departure tax for sea travelers and from $15 to $20 for air travelers.  The Ministry of Tourism and Aviation's budget has been reduced like most areas of Government, by just over $2 million.

Commenting on the budget, BHA President Sandy Sands stated "We recognize the difficult fiscal situation facing the Government of The Bahamas.  A combination of fiscal restraint and reduced government expenditures with some revenue raising measures is prudent and something which most nation's are facing.  While we understand the Government's need to address fiscal realities, the increase in the hotel room tax from six to ten percent and raising the departure tax by five dollars is cause of concern to our industry."

The Prime Minister also announced several areas where customs duties will be reduced, particularly to encourage energy efficiency, as has been advanced by BHA.  These include:

* Eliminating the customs duty for LED light bulbs, down from 45 percent, to match the current duty exemption for compact fluorescent bulbs;

* Reducing the rate on tankless water heaters from 45 percent to 10 percent;

* Reducing the rate on computer networking equipment from 45 per cent to 10 per cent;

* Eliminating the rate on aircraft parts, down from 10 percent

* Simplifying  the taxation of vehicles and promoting the use of more fuel-efficient vehicles by reducing the number of excise tax rates on cars and trucks to two: a rate of 65 per cent on passenger vehicles with an engine of 2000 c.c. or less and a rate of 85 per cent for all other passenger vehicles and trucks.

The Prime Minister also announced that the various rates of stamp tax on realty transactions are being increased by two percentage points. This will not impact the continuation of exempting first time homeowners from the payment of Stamp Tax on a dwelling home or property for the construction of a dwelling home valued up to $500,000

Commenting further on the room tax increase, BHA President Sands added "Our emphasis in recent years has been to focus on creating value in the minds of an increasingly value-conscious consumer.  This becomes difficult to do when considering the many financial challenges which hotels face, particularly during these difficult economic times."

Over the coming months, BHA and the Promotion Boards will need to assess how best to continue to create value in the vacation experience considering these and other measures which impact costs, specifically the increase in National Insurance contributions and the pending higher utility costs.

View the Budget Communication (370KB PDF) delivered by the Right Honourable Hubert Ingraham to the House of Assembly on Wednesday, May 26, 2010.