Sinckler’s second Budget
As the government struggles to keep our national debt from being demoted to junk bond status, it seems to me that Minister of Finance Chris Sinckler has few options for reducing the heavy tax burdens his Government has placed upon the populace.
Over the past two fiscal years, the Government has been unable to curb spending, with the out-turn for both years within a few million of each other at just over $3 billion (Central Bank of Barbados’ Press release on the economy to June 2011, published last week).
Even when you adjust for a higher gross domestic product (GDP) than in their Medium Term Fiscal Strategy document, the expenditure side is still higher than projected.
The current budget, for the 2011-12 fiscal year which started April 1, also comes in too high on the expenditure target ratio to GDP.
So, unless Mr Sinckler plans to bring some major cuts when he presents his second Budget in a few weeks, he will need to raise more revenue.
But doing that could take a miracle – a suddenly better than predicted Crop Over season in terms of foreign exchange, perhaps. But so far, according to the Central Bank, although the tourism numbers are up, visitors are spending less as they try to get a vacation while chaining themselves to a tighter budget leash.
Some of the big six taxes have already been made even more burdensome in an effort to squeeze more out of a moribund market: people spending less produce less indirect tax revenue for the Government, so rates and direct taxes had to be raised. Still, the cumulative intake has been roughly the same for the past two fiscal years, close to $2 billion, from these big six.
They are split evenly between direct and indirect taxes. On the direct side, you have personal, corporate and property taxes, while on the indirect side you have value added tax (VAT), excise and import taxes.
These big six accounted for 88 per cent of total Government revenue in both years, using the Central Bank’s revenue figures (Page 8, most recent review).
If you look at the Estimates for the current fiscal year, the big six will account for 85 per cent of all revenue. But it seems unlikely that Mr Sinckler, whose policies have already helped to slow the robustness of the economy by raising some of these taxes, will make them more burdensome.
How can he when he has already raised VAT, the excise tax and personal taxes by doing away with the allowances (which effectively are costing salary earners up to $5 200 per year each in higher taxation)?
Most recently, the latest valuation review appears to have increased the value of property and thus the taxes payable on it at a time when at least one leading real estate executive says market prices for property have actually declined by a minimum of ten per cent over the last year or two. (You can read Andrew Mallalieu’s outspoken piece on the Terra Caribbean website, if you didn’t see it in the Nation recently.)
The Estimates showed that the Government was aiming to reduce the fiscal deficit this year from close to nine per cent, where it has been for the past two years, down to just below seven per cent. Whether they can do that or not remains to be hoped for, but the problem is, as everyone knows, the reduction in our foreign exchange earnings, which is the fuel on which our economy runs.
The theme that seems to be emerging, which may become a major plank for Mr Sinckler’s speech, is for us to use less foreign exchange by importing less.
Said the Central Bank last week (you could almost hear the heavy sigh with which it must have been written): “Up to April 2011, imports of clothing more than doubled, while imports of food and beverages and other manufactures grew by 13 per cent and 32 per cent respectively.” In addition, it said, fuel imports grew by 37 per cent and machinery by 25 per cent.
But while it would truly be great if we could grow more at home and buy more local products, just asking people to do it will never make it happen to the extent that it could turn these figures the other way around.
We are an importing nation and we pay our bills by exporting tourism and offshore services. When those go down, there just isn’t any way to fix it unless you cut expenditure, and that seems to be an impossible task.