THE HOYOS FILE: Escaping the Sinckler-Worrell austerity straightjacket

With all Barbadians eagerly awaiting the 2016 budget speech by Minister of Finance Chris Sinckler, which is scheduled for tomorrow, president of the Barbados Chamber of Commerce and Industry, Eddie Abed has repeated his organisation’s call for no additional taxes.

Abed said raising taxes would be counter-productive as Government was already getting less revenue from taxes than expected, despite adding more taxes on individuals and businesses. 

He said that Government should instead charge or increase fees on goods and services it provided, and improving tax collection.

Abed said his previous call for duty-free zones in Bridgetown and Speightstown for both locals and visitors would save foreign exchange because Barbadians would not have to go abroad to shop as they could do so in the zones as long as they had foreign exchange.

Recently, the Central Bank lowered its projection for economic growth this year to 1.5 per cent of GDP, compared to 1.7 per cent made earlier in the year. The bank noted that the economy grew by 1.3 percent over the first six months of 2016, compared to virtually no growth a year ago.

It said “unexpected delays in major tourism investment projects” along with a slower growth in tourism arrivals, together with external debt service requirements, “resulted in the stock of international reserves falling by $43 million to $884 million, equivalent to 13.6 weeks of imports of goods and services”.

As a result, said the bank, “foreign exchange outflows will be tightened by the measures to be announced in the coming budget”. The main goal, said the bank, was to maintain foreign reserves of about $938 million at year-end, an increase of just over $50 million over the course of the year. 

Meanwhile, RBC’s Caribbean Economic Report for August 2016, noting that Barbados fiscal and external deterioration was continuing, said the Central Bank’s online data showed that reserves fell seven per cent year-on-year in June 2016 to US$450 million, which it estimated at 13.4 weeks of imports. 

The newsletter noted that the Government’s fiscal deficit widened from about $600 million or seven per cent of GDP in financial year 2014/15, to $661 million or 7.4 per cent of GDP in financial year 2015/16, an increase of 9.2 per cent year-on-year. This, said RBC’s economic report, was “contrary to the narrower deficit planned and announced in the budget.”

It seems clear, then, that this week’s budget will focus more on shoring up the foreign exchange reserves, which seem to once again be in the danger zone, and less on reducing the burden on taxpayers. Whether Sinckler will find himself in position to return the allowances removed from personal income taxes, for example, contributions to Registered Retirement Savings Programmes and home improvement, remains to be seen.

Sinckler told me in May that all options remained on the table, adding “we have to find ways in which we can help Barbadians to have more disposable income, as I said, without having to go through the process of claiming for everything”.

However, without daring to second-guess the finance minister, it does seem unlikely, given the above economic predicament Barbados is in, that giving taxpayers back their disposable income will be a top priority.

Barbadians yearn to break free of the Sinckler-Worrell austerity straightjacket, and our best hope, we thought, was this year.

What with tourism on the rebound, and from the comments quoted above, it seems even the finance minister wanted, maybe still wants, to loosen the iron grip on disposable income which the finance ministry and Central Bank have tightened in the past few years.

But, and we have gone through the scenario many times in this space, rising tourism was never going to be enough.

Once the Government continues to spend beyond its means, there really is no way to get out of the downward spiral, because the biggest spender tries to tax the rest more and more in order to sustain its soaring revenue dependency.

Of course, the fact that it hasn’t worked does not seem to deter the policymakers. If people and businesses are not paying, we will go after them, is the mantra. But there comes a point when you cannot round up any more people or companies, or name and shame them as they become immune to it.  All you can do is let them take the reins of the economy. What a concept.

To do that means cutting spending all the ways we have discussed before and continue to discuss in public fora. But the Freundel Stuart administration has made little progress on these initiatives. They keep talking about the need for reform, and to reduce the fiscal deficit, but are just not able to achieve it. The plans have all been made public over and over, but the implementation does not happen. 

So, I have to tell you this budget exercise seems like it will be a case of been there, not done that. Deja vu revisited, as somebody once said for redundancy’s sake.

As for me, I have said before – reluctantly – and I say it again, that for all of his intellectual ability and political talent, and no doubt good intentions, Sinckler has failed to announce the policies he himself has said he would like to see Barbados adopt. Without those policies, the outcome will not change.

We will continue to try to impose new taxes while cracking down on some and at the same time offering amnesty to others who don’t pay.

The bottom line is foreign exchange, and this Government has failed to come up with policies to attract more of it.

It can be done, but the politicians have to get out of the way first.

So, and I hope this does not come to pass, it seems we are heading for another attempt at an austerity budget.

I sincerely hope to be proven wrong.