Cave’s caution is of merit
FROM?The PARLIAMENTARY debate on the Value Added Tax Amendment Bill last week we got an interesting and timely analysis of the current state of the economy, in relation to the need to extend the duration of the upped rate, as the legislation put it, “until further notice”.
It is true that the Minister of Finance did say that the rate of 17.5 per cent would be a temporary measure for 18 months, and the expectation was that it would revert to 15 per cent at the expiration of that period. But these are not usual times and in the current economic environment, and even in the best of times, a Minister of Finance must be given adequate time to consider the options available to him.
More revenue was collected through the VAT than at first estimated; and although the minister said it was a transactional tax, which it is, some analysis would have to be done by the ministry to determine how much of that increase is attributable directly to the increased rate and how much might be due solely to more business activity.
These are technical issues, but they relate essentially to the political environment, and it might be useful in this run-up to the next election to focus on some aspects of the debate in the Senate where Senator Geoffrey Cave’s contribution, grounded in his long and successful experience of business, takes us into the land of reality, and away, albeit temporarily, from the politics of the issue.
His first point was to congratulate the Government on the reduction of the deficit from 8.8 per cent of GDP to 4.5 per cent. In due course we expect there will be fuller debate and point and counterpoint on the politics of this matter. But there is no question this is an important statistic.
But the harsh reality of the present situation, as the senator sees it, needs to be taken on board by all Barbadians, because the economy is as much about what is happening on Broad Street and Swan Street – and in all the corridors (small and large) of business in this island – as it is about what is being done in the corridors of power.
Senator Cave, whose remit is that of commerce, speaks directly: “The truth is that Barbados is in a difficult situation, and the most important thing for this country is to make sure that we do not again have a write-down of finances. So it is important, though difficult, to continue the VAT regime. It is important that the revenue keeps coming in order to assure that that deficit continues to fall.”
It is difficult to disagree with this point; hence the need to continue the rate in place. At the same time, Senator Cave noted that because of the difficulty the country was suffering, businesses were hurting. He suggested that what was yet to come would even be more difficult than we had seen in the last few years.
Ministers of finance everywhere are having a difficult time in these recessionary times, and it is not any easier for them in an election year. Yet if the perspective of a seasoned businessman like Senator Cave has any merit – and we believe it does – then a high degree of responsibility must feature in a large way in the Budget due later this month. It will require high skills to “marry” the competing political considerations with the pressing demands of remedial work on the economy.
Nevertheless, we urge the minister to give due weight to the lived experience of those whose daily work gives them an unrivalled view of what is going on in the economy.