SO THE TALK of the town is the Financial Statement and Budgetary Proposals delivered by the Minister of Finance and Economic Affairs Christopher Sinckler, in the House of Assembly on May 30. As a child, I always listened to the Budget commentary, not so much the Budget because I admit I didn’t understand the jargon.
The various sectors would then get together and comment on who got what. As we turned the corner of the recession in 2010 and hoped for improvement, I recall the assessments moved from what was in it for me to what measures were implemented to advance the economy, which sector was bolstered and we started to look at the impact in greater detail.
This Budget was delivered at a time when there was major uncertainty, a lack of confidence and a generally depressed environment. Most people were aware of the coordinates as there was much debate leading up to the day. Some even hinted that their expectations were for there to be some pain to address the challenging economic fundamentals and some called for the assistance of the International Monetary Fund.
Other realities indicate that the declining net international reserves fell below the acceptable 12 weeks cover, a massive debt to GDP ratio (over 100 per cent), large debt service requirements which impact the spiralling deficit, a heavy reliance on Central Bank borrowing – or as some would say, printing money.
This sobering reality led to calls in various quarters to get the fundamentals right and a specific request not to increase the burden of tax any further on the people. In addition, it is known to all that the general elections are eminent. On the positive side, we have been seeing growth in the economy close to two per cent for the first quarter primarily fuelled by tourism receipts and it is forecast that the next quarter is on a path to realise growth.
Firstly, it was clear that the minister had a very difficult wicket to bat on. The inaction of successive budgets to implement several critical measures earlier have squarely led to this current situation. When the economy could have endured the pain in earlier times, that was when the higher taxes could and should have been implemented. Barbados remained in an economic doldrum for some time, despite austere measures over the last six years. So yes, the timing was too much too late.
Secondly, the budget lacked a clear strategy towards a particular goal. It cannot just be to balance the budget or to see a surplus. The minister through the budget therefore missed a critical opportunity to clearly outline the growth strategy. Too little attention was paid to increasing national competitiveness, exacting a deliberate improvement in productivity and engendering a national agenda of service excellence. In too many quarters we are hearing that Barbados’ standards are dropping. We have to address this at the national level so as to receive the buy-in.
Thirdly, there were too many inconsistencies. The preamble was pretty extensive where the minister indicated his key areas of focus, why he didn’t take on certain measures presented, including those from the two Prime Minister-constituted committees, why he came to certain conclusions, why you shouldn’t attempt to tax your way out of economic challenges, but a great deal of impending hardship is imminent as a result of the measures.
If indeed this budget encompassed the best policy mix in the minister’s view, it is puzzling if he took all of the possible advice that was available to him. Every time there is mention of addressing the subsidies and transfers there is a rebuttal that jobs will be lost.
There is no way that a central government in 2017 could need over 60 statutory corporations and/or state-owned enterprises demanding so much from the public purse. I contend that this is a critical drag on the country’s purse and much duplication and inefficiencies are taking place. Yes, some jobs will be lost but in the long term Barbados will be better off, our standard of living will be preserved and workers can see increases sooner.
So in a nutshell, the budgetary measures have sought to extract high tax revenues through increases in the National Social Responsibility Levy (NSRL), foreign exchange transactions and excise tax increase on gasoline and diesel. These measures will definitely increase the cost of living and the cost of doing business. Consumers, entrepreneurs and businesses stand to feel a significant impact. All imports, including critical inputs for the manufacturing sector, building materials and investment, will be impacted.
Did I say all imports will increase in cost? This will definitely lead to further contraction in the economy as economic activity will come to a grinding slowdown and as usual the government will not realise the expected gains. As Barbados is an open economy heavily dependent on imports both the eight per cent increase in NSRL and the two per cent foreign exchange transactions levy, will cause prices to rise and will lead to inflation increase.
In addition, there was a missed chance at injecting focus on the key growth sectors like technology, culture, renewables as well as implementing some growth enhancing measures. It cannot be overstated that Barbados has to improve its doing business ranking. Business facilitation remains at an all time low as businesses trade in goods and services in this country.
Another missed opportunity was the divestment programme. Just naming Hilton and Barbados National Terminal Company Limited is too piecemeal. There should be a more strategic attempt to offload some of the government’s entities. The positives were the tax amnesty, the plan to improve tax administration, and the recognition of the need to get the fundamentals right.
For all of the reasons above, I mark the minister very hard overall for painting the picture of those things that were needed, omitting the critical strategy to get us out and again focusing on increasing the revenues so drastically through taxes which will only shrink the already small economy, and not giving sufficient focus to the expenditure side.
Lisa Gale (chartered director) is an international trade and business consultant. She is managing director of Lisa Gale Consulting and co-founder of CARICOM Corporate Services. Email: lisagaleconsulting@gmail.com