One of the Caribbean’s leading economists is cautioning against an over-reliance on taxation as a source of revenue.
At the same time, executive director of the Caribbean Centre for Money and Finance (CCMF), Professor Compton Bourne, said that in trying to fix their own fiscal problems, governments in Barbados and elsewhere in the Caribbean should not ignore similar challenges facing businesses and “the household sector”.
The former Caribbean Development Bank president gave the advice in an analysis entitled Some Challenges To Government Financing In The Caribbean. It was published in CCMF’s April newsletter.
Bourne said regional governments’ strategies for financing “must. . .be all-encompassing in scope, seeking to improve financial access for themselves as well as for the other two economic partners”.
“In some circumstances, the strategies that governments adopt to meet their own financial needs may conflict with objectives in relation to private sector financing and household financing. Such conflicts are perhaps more common and evident with tax policy but can arise also with respect to government debt policy,” he said.
“Faced with both increasing pressures to expand current expenditures and the requirements of capital investment programmes, governments will consider fiscal measures as part of their financing strategies. Taxation might be viewed as the core of government financing strategy. There has to be care, however, that tax rate increases are not so high that taxpayers begin to view taxes as an imposition and intensify efforts at avoidance and evasion.
“Transaction taxes are extensively utilised especially in those states which have eschewed income taxation as one of their fiscal instruments. While effective as revenue generators, transaction taxes tend to be regressive, i.e. having greater incidence on persons in the lower regions of the personal income scale and consequently are inconsistent with social policy objectives,” he added. (SC)