TUESDAY’S PRESENTATION by Minister of Finance Chris Sinckler is not only one of the most eagerly anticipated, but it is also going to be one of the most closely scrutinized in recent memory.
Not only have Barbadians been crying out for the hardships being experienced during this unprecedented fiscal crisis, but the ruling Democratic Labour Party (DLP) is being forced to find a middle ground between economic easement, especially for the poor, and a place of comfort where it can secure its chances in the next general election which is only months away.
In this space previously, I explored the likelihood of the Government being tempted to use this Budget to offer a grab-bag of election “goodies” in an attempt to lessen the pain of the suffering. But the question that arises is: at what cost to the overall condition of the economy and the country?
In the prevailing political environment of Barbados, it is natural to expect the upcoming Budget to contain some degree of politics, that is, to provide some relief for the obviously suffering electorate. Such relief usually takes the form of reducing taxes and/or prices.
Easing the pressure
In the circumstances, reducing taxes could only mean easing the pressure from the value added tax (VAT) or dealing with the controversial tax on allowances. Relief could come with respect to the price of gasoline and diesel or the electricity bill.
Never before has the budget politics been so constrained by the country’s economic condition. We are told by the experts that Barbados is one step away from having its international credit rating classified as junk.
At the same time, the Government has agreed to a fiscal consolidation programme, which gives it access to an initial US$33 million with the hope of negotiating up to US$50 million up front.
In the temptation to play the political stroke in the Budget, this Government has to take into consideration the presence and role of the external umpires in the form of the ratings agencies, the Inter-American Development Bank and the dreaded International Monetary Fund (IMF).
It is one thing to want to score, but these umpires would be mindful of the manner in which it is done. Any sign of recklessness is likely to cause a raised finger, especially when promises have been made to be prudent and watchful.
Such prudence was suggested when the Ministry of Finance crafted the Medium Term Fiscal Strategy (MTFS) 2010-2014 in response to the global, regional and domestic financial and economic circumstances affecting the Barbados economy. According to the strategy document, “the core strategic objectives of MTFS 2010-2014 will be to enable Barbados to make the critical transition from crisis to recovery, to turn the page on an era of expanding fiscal deficits and to adopt a set of policies, parameters, regulations and reforms to meet the needs of the 21st century global economy”.
The Opposition Barbados Labour Party (BLP) was quick to point out that the MTFS identified fiscal adjustment scenarios for the years 2010/2011 to 2014/2015, but in the fiscal year 2012/2013 the adjustment was zero for Government spending.
In essence, during the current fiscal year in which the general election must fall, the Government opted not to adjust expenditure, which must be interpreted as being purely political.
If you recall, following the Budget of December 2010, the tax measures were met with much public debate, especially the tax on allowances and the 2.5 per cent rise in the VAT rate.
In response, Minister of Finance Sinckler indicated that he would review the policies with the hope of providing some relief. However, in recent weeks, the Government conceded – somewhat sheepishly I thought, given the last-minute rush to Parliament for an indefinite extension – that the measures were to be permanent in light of a policy-based loan from the IDB which was agreed to in March of this year, just prior to the Estimates.
From a political perspective, any tax relief or price relief would have to be very broad-based to derive the greatest political mileage.
But it is being argued in some quarters that the tax on allowances affected only a few thousand taxpayers. On the other hand, however, the VAT affects everyone.
Politically, relief from the ubiquitous VAT is more favourable.
There is also the argument raised primarily by the Opposition that gasoline and diesel prices have been higher than they ought to be, given the movements in world crude oil prices. Perhaps some relief in these prices via a reduction in the VAT rate is on the cards, but then this would go counter to the agreement with the IDB.
Criticism
And then, of course, there is the pricing of electricity which has received its fair share of criticism. However, that criticism has been connected to the fuel charge, which is again in the domain of Government through its ownership of the Barbados National Oil Company (BNOC).
Though the arguments are complex, the belief is that the Barbados Light & Power (BL&P) is being asked to pay more for the fuel which is used to generate electricity than it should be paying given the profit margins of BNOC.
In terms of the politics, reducing the price of electricity has as much political reach as reducing the VAT. Further, it is not locked into the policy-based loan with the IDB.
The truth is that this upcoming Budget is going to be a test of Government’s political savvy tempered by a hearty dose of economic reality.
• Albert Brandford is an independent political correspondent. Email albertbrandford@nationnews.com