INSTEAD OF ADOPTING A STRATEGY that is heavily dependent on “a bit of investment” and a short term boost from construction this year, Government should have considered “a slight reversal” of the taxes Barbadians are being burdened with to boost their spending power and help stimulate the economy.
The Barbados Economic Society (BES) suggested this option last week in light of Central Bank Governor Dr DeLisle Worrell reporting that not only had the foreign reserves stabilised but the fiscal consolidation programme was working.
BES president Jeremy Stephen said Government was adopting “a rather risky strategy”. He said the Freundel Stuart administration seemed to he hoping that the fiscal deficit would be reduced significantly enough by the end of its 2016/2017 fiscal year to allow it to ease taxation on consumers and companies.
However, he noted that growing interest rates were likely to spill over into the domestic market by the end of this year, which meant Government’s borrowing costs, and hence interest payments and overall debt, would continue to be a major problem.
Speaking in an interview with BARBADOS BUSINESS AUTHORITY, the economist said: “We would have noticed that there is a widening gap between corporate taxation going lower and lower and personal income taxation which has risen and the Governor made note that most of the increase this year would have been due to late payments on tax refunds. But the fact remains that the burden to the average consumer in Barbados has grown quicker than even the level of inflation. There is less hope for investment by typical consumers in Barbados and they will only have enough income to pay for consumption.”
He observed that “the fiscal consolidation exercise was meant to increase that burden so you could have kept retained imports in check and also help conserve foreign exchange and on the grounds that that foreign exchange has been stable”.
“They did say that the foreign reserves have been stable, and in light of that and a supposedly successful fiscal consolidation strategy, we would figure that there should have been a slight reversal on the burden so that you can start to pick up the economy next year, as opposed to the economy being picked up by a bit of investment and a bit of short term construction,” Stephen said.
“So persons have been trying to save but they are not really given much disposable income to save at all. All of this is being done and the Government hopes that at the end of fiscal year 2016/2017 output can pick up as a result of them not having such a big fiscal deficit and they are able to reduce the tax burden to consumers first, and then hopefully it can result in greater profits for companies. And that then would help them to reduce the debt burdne that we currently do have and the interest payments which are still growing.”
“But we still feel that’s a rather risky strategy because global interest rates are growing and it will feed into the banking system here somewhat since commercial banks, which have reduced their lending to Government signficantly this last year, will try to adjust interest rates upwards. I figure by the end of this year we will start to see interest rates trickling upwards somewhat, especially with reduced credit circulating in the system.”
