Monday, April 22, 2024

No tax relief on offer

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FOR GOVERNMENT TO ACCESS the US$50 million of which Minister of Finance Chris Sinckler spoke in response to the chief economic spokesman Clyde Mascoll, of the opposition Barbados Labour Party (BLP), on the secrecy of the Fiscal Consolidation Programme (FCP) with the Inter-American Bank (IDB), Barbadian taxpayers cannot expect any relief ahead of the next general election.
It now seems clear that there will be no return of the VAT rate to 15 per cent, removal of the income tax on travel and entertainment allowances or any reduction in the excise tax on gasoline.
Minister Sinckler told the DAILY NATION this past week that he had announced plans for two separate policy-based loans, one of which was the Fiscal Consolidation Programme raised by the opposition spokesman on the economy.
That announcement was not widely reported, if at all, and the contents of the programme were not revealed.
The genesis of the FCP dates back to the 2011 Report on the International Monetary Fund’s (IMF) Article IV Consultation, which revealed that “staff and the authorities (Government) agreed on the need to focus fiscal consolidation on expenditure reduction since room for further tax increases is limited”.
The formal discussions which led to that report took place during the period October 3 to 14, 2011.
The need for fiscal consolidation came in spite of the heavy taxation in the budgets of 2008 and 2010. The same 2011 report noted that “the 2010 Article IV mission recommended a number of revenue-enhancing and expenditure-reducing measures to consolidate fiscal imbalances and reduce the debt levels. On the revenue side, the mission suggested an increase in the VAT by three percentage points to 18 per cent combined with the broadening of the tax base, elimination of expenditures and improvements of tax administration”.
While Government did not introduce the 18 per cent VAT as recommended by the IMF, it went for a rate of 17.5 per cent which was to last for a period of 18 months. The increase of the VAT rate in December, 2010 was accompanied by other fiscal measures, including an increase on excise taxes on gasoline by 50 per cent, and taxes on previously tax-free allowances for travel and entertainment.
In addition, bus fares were raised and some fees and charges for dispensary services were adjusted.
Notwithstanding the increases in taxation which raised millions for the Consolidated Fund, the IMF 2011 report observed that the Government was not successful in containing expenditure growth, which has proved more politically challenging. As a consequence, a consensus was reached that there was need for further fiscal consolidation.
By March 6, 2011, a project team from the IDB conducted an assessment of Barbados’ need for a Fiscal Consolidation Programme as recommended by the IMF. This assessment date was just prior to the presentation of the Estimates in March, therefore, the Minister of Finance would have known of the contents of the FCP.
Though he suggested that the IDB programme was alluded to in the Estimates debate, there is no recollection of the agreed to contents.  
According to the IDB report, “the project team and the authorities agreed that the . . . FCP would include the following four components: (1) macroeconomic stability; (2) strengthening of tax revenues; (3) improving control and quality of expenditure and (4) strengthening public debt management”.
Programme’s objective
The objective of the programme is to support the Government’s efforts to improve its fiscal position over the short and medium terms. These efforts include the measures introduced in the Budget of December, 2010 outlined earlier.
Originally, the Government was expected to receive US$33 million for the “first operation” in the programme. However, “the Government and the bank are exploring options to increase this first operation to US$50 million”. The IDB report further revealed that “the targets for the first operation” are: (i) make permanent the increase in the VAT rate from 15 per cent to 17.5 per cent; (ii) an increase of 50 per cent in the excise tax on gasoline and other fees; and (iii) “the elimination of tax-free allowances”.
The Minister of Finance, in responding to the opposition spokesman on the economy, revealed that the Government was now requesting only US$50 million and not the full US$183 million identified in the FCP.
This revelation is difficult to comprehend since the Government has agreed to the entire programme with all its components. Further, the US$50 million to which the Minister of Finance referred deals with the first operation, which contains measures that have already been introduced.
Why would the IDB wish to give the Barbados Government BDS$100 million for policies that have already been put in place?
The Minister of Finance said: “We will need resources to implement many of the recommendations. There is no secret. The IDB is not the IMF.”
Having said that the Government was only going after US$50 million of the US$183 million in the FCP, it does not make sense that the Government needs financial resources to implement policies in the first operation that have been in place since December, 2010.
The fact that the Government needs resources from the IDB to implement recommendations could only be interpreted to mean that all the measures of the first operation have not been put in place.
So the country can expect further measures aimed at more fiscal consolidation.
Minister Sinckler also told the DAILY NATION that the request for the US$50 million would be submitted to the IDB in August/September of this year after his proposed Budget in June.
He emphasized that efforts at fiscal consolidation and reform were “particularly in the areas related to tax collection and efficiencies, revenues from direct and indirect tax and expenditure reviews”.
The IMF’s 2011 report indicated that there was no scope for further taxation which seems to suggest that the Government is hoping to be rewarded for the measures that have already been introduced.
This view is further reinforced by the IDB report, which makes it clear that the receipt of US$50 million of which Minister Sinckler spoke is “subject to the provision by the authorities of evidence of compliance with specific policy measures that support the achievement of the programme objectives”.
• Albert Brandford is an independent political correspondent.

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