THE CURRENT GOVERNMENT has steered Barbados off of a pathway to prosperity into a gully of despair. It has compromised the standard of living of the current generation without enhancing that of the next generation. This is the result not of our most challenging economic time but of our most inept Government.
There is now an abundance of evidence to show that the current Government made the wrong choices in responding to the initial economic circumstances confronting this blessed country in 2008. The then economic circumstances were not unfamiliar, either in scope or nature. In fact, when compared with the early 1990s, the country had a more favourable fiscal environment, a far less difficult problem with foreign reserves and a much lower unemployment rate. Yet the Government veered into the gully of despair.
The fiscal response of not employing a familiar stimulus package as advised, but instead going for substantial employment creation in the public sector, served to create the current fiscal madness that reached its peak in 2010/11. As a result, since then the Government has been chasing its fiscal tail.
There have been no less than four revenue-raising measures that have been ill-conceived. The tax on cellphones was never implemented. A greening levy was to replace the environmental levy. The municipal solid waste tax that avoided all of the principles of taxation, except one, was imposed and is now to be repealed. And currently a tipping fee that makes no sense is the centre of controversy, and is expected to raise $9 million.
The common thread that ran through each of the above taxes is a general ignorance of tax policy on the part of the Government. Apart from raising revenue, a tax policy may appeal to two broad principles of efficiency and equity. The former is effectively the loss suffered by the entity/individual above and beyond the payment of the tax itself. The latter is simply about the fairness of the tax.
While these two principles are steeped in economic theory, the fairness of a tax has a definite political judgement to it. However, at no stage in the last eight years has that judgement been utilised in the interest of Barbadian taxpayers, since the only interest of the Government has been in raising revenue.
As a consequence of pursuing self-interest, the Government has stumbled frequently in conceiving and/or imposing taxes on Barbadians. In the interest of space, the solid waste tax will be used to demonstrate the folly of the Government’s taxation policy in recent years.
When the tax was announced as a replacement for a greening levy on insurable income that ran into technical difficulty, it was indicated that an average of $30 million has been spent to treat garbage before it goes to the landfill. The treatment process is certainly not new and therefore the purpose had to be to raise revenue to help the Government to cope with its fiscal crisis.
Notwithstanding that an average treatment cost of $30 million was identified, the Minister of Finance stated that “a 0.7 per cent municipal solid waste tax on the site value of all land properties in Barbados . . . should bring in a total of $49.3 million” for the following year. He was proposing to collect just over 60 per cent more than the treatment cost from the tax-which emphasises that the focus was on raising additional revenue.
As a result, there was a lack of clarity in the purpose of the tax. Once there was objection to the tax, the minister reduced the rate to 0.3 per cent and yet expected to collect more revenue than at the original rate. To the trained eye, this was consistent with the botching of tax policies introduced in the past six years.
The question is: why is there a need for a tipping fee on waste haulers in the first place, since the solid waste tax was supposed to be used to pay for the same waste treatment service? The answer is: the revenue was used to help cope with the fiscal madness of the Government in the same way that the tipping fee will be used.
Unfortunately, Barbadians will pay even more taxes after the Budget on June 15. This will happen as the Government is following the dictates of a study by the Fiscal Affairs Department of the International Monetary Fund which suggests that several allowances and deductions are abolished for income tax purposes. This will have the effect of substantially increasing income taxes paid by Barbadians.
• Dr Clyde Mascoll is an economist and Opposition Barbados Labour Party adviser on the economy. Email mascoll_clyde@hotmail.com.
