As the date of the next general election draws closer and both political parties put forward their plans for the country’s future, their strategies for managing Barbados’ economy have risen to the forefront.
Among Barbados Labour Party (BLP) leader Owen Arthur’s promises were the divestment of the Caribbean Broadcasting Corporation, the reversal of value added tax (VAT) from 17.5 per cent to 15 per cent, a reduced new middle-income tax rate of 25 per cent, restoration of allowances to their former tax-free status, reduced land taxes, and tax credits for people who bought medical health insurance and education savings plans.
Meanwhile, Opposition spokesman on the economy Clyde Mascoll suggested that Government cut Barbadians’ energy bills through limiting Barbados National Oil Company’s (BNOC) profits.
“The best way to ease the pressure on Barbadians is to reduce the cost of energy, the cost of transportation, and the [best] way that we can think of is to take the BNOC and prevent it from getting $60 million in profit in a year in a depressed economy . . . .
So Bajans pay less for electricity, gas and diesel.
“No one who is an independent economist can disagree with that,” Mascoll said in the November 4 SUNDAY SUN.
He and BLP colleague Mia Mottley spoke of the need to reduce taxes in order to give Barbadians more money to spend, which would help spur economic growth.
They noted that tax revenues were down by two per cent, which pointed to a reduction in real economic activity.
Mottley stressed that in addition to giving Barbadians more spending power, Government would have to restructure its expenditure to pump money into the productive sectors that need to grow “in order to get out of the chasm, the very deep hole that we find ourselves in”.
In the October 30 DAILY NATION, however, the Barbados Economics Society said unless the Opposition specifically identified the state corporations it wanted to get rid of, the giveaways it announced “will just create a mess” in the economy and widen the deficit.
BEC president Ryan Straughn commended the “pro-growth initiatives” of the Opposition, but said without “specifics” it was difficult to assess how effective the policies would be.
According to the head of the independent body of local economists, “Obviously, this is election time . . . but given the state of Government finances which really have not improved much at all . . . . I don’t want to speculate on what [the Opposition’s] intentions are but given what is going on right now, removing all of those – as far as I can see – will just make a bigger hole in terms of Government’s finances and the deficits that Government is running.”
Economist Dr Winston Moore was also very cautious on the Arthur proposals.
“It is instructive that few suggestions were offered on the expenditure side”, he said, adding that in the absence of further information it was assumed that Arthur’s concessions would come from the privatization of Government entities and “assumed growth”.
Moore, a former BES president, cautioned: “What is needed at this election time is that the present administration resist the temptation to fall into the usual political business cycle trap of increasing pre-election spending, under the assumption that this can be reined in afterwards; this never occurs.”
Furthermore, a senior university lecturer said the BLP’s tax-cut proposal was an election gimmick and issued a warning against privatizing state enterprises that provide social services for the masses.
Michael Howard, professor of economics at the University of the West Indies, Cave Hill Campus, gave the BLP plan a thumbs-down, saying such large tax cuts were “a relic of supply-side economics of the 1980s” and not the answer to the country’s current economic problems.
Meanwhile, Minister of Finance Chris Sinckler said the Opposition’s tax-relief plan was a “vote-catching plan” that if implemented, “will have ruinous effects on thousands of ordinary Barbadians”.
“It is inconceivable that this self-proclaimed great economist could, in this fiscal and economic environment and with a world economy dramatically slowing down, proffer a set or proposals that would explode our fiscal deficit, set off massive leakages in the foreign reserves, deepen the balance of payments deficit, and pitchfork the country straight into a devaluation of the national currency,” he said.
Sinckler said if this approach was coupled with Arthur’s privatization plan while “cutting Government’s spending on health and education, one could only but imagine the sheer devastation that will be visited on workers, households and businesses across Barbados”.
But in the November 19, 2012 DAILY NATION Arthur insisted that Government should use some of the island’s foreign reserves to give gradual tax relief to Barbadians and stimulate the economy.
Saying that 23 per cent of the economy – the export sector – was in a dismal position, he reiterated that Government should take some of the reserves and use the money to stimulate the 76 per cent segment of the economy that depends on local demand.
The Barbados Chamber of Commerce & Industry made a similar call in the November 18 SUNDAY SUN, its president Lalu Vaswani noting that unless something happens soon, the private sector might not be able to sustain current employment levels. Unemployment in Barbados stands at 12.2 per cent.
Vaswani stressed that the private sector understood Government’s fear of running down the island’s vital foreign reserves on consumer imports, particularly when the tourism sector was hurting from reduced visitor spending. He argued, however, that maintaining economic activity in the country was also key to keeping Barbadians employed.
In the November 1 DAILY NATION, Central Bank of Barbados Governor Dr DeLisle Worrell urged Barbadians to hold strain and be patient.
In his quarterly Press conference, Worrell said Barbados required foreign currency for almost everything it used and noted that unless the country earned more foreign exchange, the policies to depress their spending would have to continue in order to protect the entire economy.
He said rolling back current tax measures could expose the island to great danger.
Asked to directly respond to the Opposition’s proposals that called for a reversal of almost all the tax measures introduced over the last two years, Worrell said Barbadians’ spending more on imported goods without increased foreign exchange earnings from sectors like tourism and international business would deplete foreign reserves.
