HAVING BOASTED that the fiscal adjustment strategy was home-grown, it is surprising how much the Government relied upon a tax study of the International Monetary Fund (IMF) to impose $200.2 million in taxes on Barbadians. It is a fiscal crime given what we have had to endure over the last seven years.
The Government continued its cruelty to middle- and upper-middle income taxpayers in particular as well as businesses. And workers who earn less than $25 000 per year and therefore escape paying income tax have been caught in a widened tax net.
On the recommendation of the IMF, the basket of food items that enjoyed VAT-free status has been decimated as the Government attacked anything in its policy path that could yield revenue.
On the one hand, it put a tax on sweetened beverages on the guise that it was designed to reduce consumption for health reasons. Yet it pulled several fruits and vegetables into the VAT net.
There is an obvious contradiction from a health perspective in the two policies above. In seeking to discourage the consumption of sweetened beverages, Government ought to be encouraging the consumption of healthy fruits and vegetables. Having not done so, it is clear that the Government had one intention, that is to raise more revenue.
The imposition of VAT on most of the items in the basket will increase the cost of living. This conclusion is self-evident, since the IMF estimated that to exempt the VAT on the entire basket would have cost the Government to give up $170 million in a fiscal year. It is therefore highly questionable that the Government will collect only $20 million in a full financial year, after subjecting the food items to a full VAT.
It is also highly questionable that 24 000 envelopes are being stuffed to send to persons owed income tax by the Government.
Low-income earners who received a reverse tax credit of $1 300 that was cut in half by the Government will feel the effects of the VAT on food more than any other class. Have a heart and restore the tax credit.
The fiscal cruelty on property owners reached new heights as the temporary solid waste tax that was repealed, found its way into a new property tax. A temporary band has become part of a permanent property tax. In addition, owners who previously paid no property have been pulled into the net.
If the controversial tipping fee is expected to raise just $4 million in revenue, then it makes the fee very questionable from the perspective of efficiency in tax policy. In essence, is it worth the effort to use this fee to raise such low revenue?
It was indicated that the land/property tax will assist in helping the Government to meet some of the additional costs associated with solid waste management. This invites several questions that the Government will have to answer in the face of the Cahill revelations. There is far more in the mortar than the pestle.
On the business front, it is fully recognised that encouraging investment is an essential part of the strategy needed to restore sustainable growth in the Barbados economy. Since the Government is simply about tactics that will yield more revenue and not strategies for growth, it comes as no surprise that the period for group relief that deals with losses has been reduced.
PricewaterhouseCoopers concluded that “this measure increases the tax burden on corporate taxpayers who have been severely impacted by the downturn in the economic climate for several years . . . . Gains from the offset of group tax losses are primarily used for business expansion and investment, and this should be the main focus as we seek to stimulate our economy”. In the absence of revenue grabbing, it ought to be clear to the Government that private sector investment is critical to economic growth, not just the listing of public sector projects.
Even when the Government recognised its folly with respect to investing in tertiary education, it identified a mere $2.5 million scholarship programme. Of equal concern is the eligibility. If the “preference will be granted to applicants who withdrew from their studies for financial reasons”, then the income eligibility outlined in the Budget becomes highly questionable.
Barbadians have been taken for a fiscal ride over the last six years with a home-grown programme that started in 2010, not 19 months ago. The Government continues to choose the same persons to tax and put the final dagger in professional persons who have to register to work.
Dr Clyde Mascoll is an economist and Opposition Barbados Labour Party adviser on the economy. Email mascoll_clyde@hotmail.com