THE MORE THE MINISTER of Finance speaks on the economy, the more uncertain I become about the prospects for recovery.
He last spoke at the regular Editorial Forum of the Nation Publishing Company Ltd and promised that “if not all, a significant portion” of Barbadians’ income tax refunds will be paid by June. He was as convincing as his recent tirade on vote-buying in his constituency.
Sometimes I wonder if the minister takes time to think about the substance rather than the style of what he is saying.
He said that the estimated cost of tax refunds for the most recent income tax year is $80 million. This figure is up from the yearly average of $65 million to $70 million.
Rather than identify the reasons for the increase, the Minister of Finance said that the payment of the $80 million has become “a monstrous problem”.
The question is why should an increase of $10 million in tax refunds be a monstrous problem for the Government of Barbados?
The Government has spent the last seven years increasing the rate of the Value Added Tax (VAT) that was to be temporary; imposing a Consolidated Tax that has been extended; inflicting a Municipal Solid Waste Tax that is being reviewed, along with the increases in several other tax rates.
Apart from increasing existing tax rates and introducing new taxes, the Minister of Finance took away allowances and deductions from income taxpayers which increased their taxable incomes and even taxed their personal allowances.
Still in crisis
Notwithstanding all of the above measures, the fiscal position was and still is in crisis, which prompted the governor of the Central Bank to suggest, in the last quarter of 2014, that a fiscal adjustment of $176 million is needed to meet the fiscal deficit target at the end of this month.
The Minister of Finance is now trying to give the impression that there has been some significant improvement in the fiscal position, which is not true.
But this is all part of a plan by the Government to speak in terms of an economic recovery, given the upswing in tourist arrivals during the current winter season.
The Minister of Finance is believing his own propaganda so much so that he is not understanding the information. He told the forum that annual taxable income is close to $4 billion “but the actual tax that we collect is about $1.4 billion”.
The Minister of Finance apparently does not recognise that this represents an average tax rate of 35 per cent which is very significant and so he is clearly confused.
Significant majority
The confusion comes because he went on to say: “You know what that means – that there is a significant majority that does not find its way into [Government’s coffers] even though it has been assessed, because of allowances, credits, deductions and so forth.”
I would hate to think that the Minister of Finance intends to find ways to increase the average tax rate of 35 per cent, under the guise that Barbadians are not paying enough taxes.
If more taxation is imposed on Barbadians, it will compromise further the prospects for economic recovery. The Government, and certainly the Minister of Finance, ought to have learnt some lessons from the misguided tax measures of the past seven years.
Therefore it is unbelievable that staying on the current path of economic failure is still being considered by the Government.
Fortunately, no matter how badly the economy is managed, it will not die but will exist at a much lower level with the attendant consequences. The collapse of the Barbados economy will occur if there is no foreign exchange to do business with the rest of the world.
Access to foreign exchange over the past seven years, in spite of the fiscal crisis and the absence of economic growth, is the one thing that kept the economy aloft and out of the hands of the International Monetary Fund.
Once the Government can borrow money from local and/or foreign sources and print money at the Central Bank, the promise of the Minister of Finance to refund taxpayers is possible but not certain. But the promise of the repayment on grounds of the performance of Government revenue between now and June is a typical failing of the minister.
Since Independence, the second quarter of the calendar year has not brought in more revenue than the first quarter for the Government, so there is nothing special about the end of June, since genuine expenditure adjustment is not yet in evidence.