Now that the dust has settled on the recent Budget, it is evident that Minister of Finance Chris Sinckler was uncertain, unclear and underprepared. He was unclear about the purpose of the measures – whether they are intended to reduce the fiscal deficit; to save jobs and to grow the economy.
He was uncertain about the incidence of the measures – whether they apply to parliamentarians; whether they apply to the hotel accommodation; whether they apply to civil servants or whether they apply to diesel.
He was unprepared in his wrap-up for the course which the debate took and as a result resorted to the pulling of files in an attempt to run from the substantive issues put on the table in the debate.
It is widely known that the stated objective to reduce the fiscal deficit was more to appease the international credit rating institutions than to genuinely address the real issues responsible for the country’s fiscal crisis. The crisis is not the result of the international recession; it is the result of excessive spending, which accelerated since 2007.
The focus of the Budget was not on solving the obvious problem of overspending; it was on raising net revenue of $159 million. If Government is expected to spend $172 million on new capital projects, then the spending exceeds the new revenue. The numbers suggest a bigger deficit and now that the VAT on hotel accommodation is to revert to 7.5 per cent, the loss in revenue obviously worsens the fiscal deficit.
Even if jobs are temporarily saved in the public sector because of the Budget, its impact on the businesses and households will mean higher unemployment in the private sector after the upcoming winter season.
According to Government’s own numbers, a dollar spent on a project increases national income by four dollars over the life of the project. If it is over the life of the project, the full four dollars cannot be allocated to next year; it simply cannot work that way.
Therefore the Budget is expected to reduce growth in the economy in 2011, as a dollar in taxation reduces national income by three dollars.
The numbers are indeed magical!
The most obvious lack of clarity was the initial imposition of a higher VAT on hotel accommodation, which comes after tormenting the British government about an additional BDS$72 on an economy class ticket to the Caribbean region. No wonder, the policy was reversed.
Imagine hiring an employee to do a job that involves travel and paying part of the salary in an allowance as permitted by the law. The Minister of Finance, in a mad rush to raise revenue, decides that the travel allowance is now to be taxed in spite of the fact that the employee earns less than $25 000 per annum and is not supposed to pay taxes.
Please note that the payroll costs associated with salaries for national insurance benefits do not apply to travel and entertainment allowances. The new policy on the allowances raises the cost of employment for the private sector.
Furthermore, along with increasing significantly the price of gasoline and the VAT rate, the Minister of Finance reduces significantly the take-home pay of several Barbadian workers by taxing travel and entertainment allowances; this gets an amazing thumbs-up from employers.
There is also uncertainty about the abolition of the environmental levy as the country may sooner rather than later have to reintroduce an environmental levy in accordance with the World Trade Organisation.
Car prices have to increase as the removal of the levy on the CIF value is much less than a hike of 2.5 percentage points in the VAT on a much bigger tax base that includes everything plus the dealer’s mark-up.
The poor have been impacted by higher bus fares, higher costs of food, other goods and services; while the working poor and the middle class have been impacted by all of the above plus a reduction in their take-home pay.
• Clyde Mascoll is a professional economist and former Government minister in the last Barbados Labour Party administration.
