WHAT MATTERS MOST: Waste tax a total failure
From the inception, the solid waste tax failed the following principles of public policy: (1) clarity of purpose; (2) certainty of incidence and (3) consistency.
In more recent weeks, the tax has also failed to meet the cost effectiveness principle. This article identifies the mess made by the solid waste tax.
When the tax was announced as a replacement for a Greening Levy on insurable income that ran into technical difficulty, it was indicated that an average of $30 million had been spent to treat garbage before it goes to the landfill. The treatment process is certainly not new and therefore the purpose had to be to raise revenue to help the Government to cope with its fiscal crisis.
Notwithstanding that an average treatment cost of $30 million was identified, the minister of finance stated that “a 0.7 per cent municipal solid waste tax on the site value of all land properties in Barbados . . . should bring in a total of $49.3 million” for the following year. He was proposing to collect just over 60 per cent more than the treatment cost from the tax, which emphasises that the focus was on raising additional revenue.
As a result, there was a lack of clarity in the purpose of the tax.
Once there was objection to the tax, the minister reduced the rate to 0.3 per cent and yet expected to collect more revenue than at the original rate. To the trained eye, this is consistent with the botching of tax policies introduced in the past five years.
The tax failed the consistency test because it sought to impose a burden on property owners who are exempt from the existing property tax.
A major principle in taxation is to provide relief for those at the bottom of the income ladder. This is why there is a personal income threshold below which no tax is paid. Such exemptions are designed to achieve equity in the tax system.
The original solid waste tax failed the consistency test as it was imposed on everyone and at the same rate. The recent attempt to ease pensioners has served to complicate the tax because it is applied to the site value, but the exemption for the pensioners is based on the improved value of the property.
In the case of the agriculture sector, it must be noted that the rate is now effectively 0.15 per cent. This is indicative of the state of confusion in the implementation of the tax since in the space of a few months, there were three different rates applied to the sector.
The issue of consistency also applies to the tourism sector which has been identified for special treatment in light of the benefits given to the Sandals Group and the need to position the sector to become more competitive. Yet the Government is now prepared to ignore the role of the sector in earning foreign exchange and creating economic growth. This is policy inconsistency at its best.
The issue of incidence is perhaps the most important in public policy as it has to do with who bears the burden.
In an economy with a growth problem, fiscal policy has to be analysed as a possible source of the problem. The Government chose to tax its way out of an economic recession; the evidence is clear that it failed.
In the face of evidence that the more taxes imposed on the economy the less revenue is being collected, the Government refuses to ignore its own ignorance. It first taxed expenditure in the economy; when this failed it taxed incomes; when the latter failed it taxed assets.
The Barbados economy is smaller in 2014 than it was in 2007 mainly because it has been put in a stranglehold by an unfortunate set of fiscal policies. The two agents – households and businesses – that need the most breathing space during a recession were suffocated to keep the Government alive.
The Government’s taxation policies obviously failed the incidence test.
The solid waste tax cannot be analysed in isolation from all that has transpired in the economy over the last six years. It must be seen in the vein of “one-one blows does kill old cow”. The tax blows have been severe and the cumulative effect deadly.
And finally, the cost effectiveness principle is now measurable with the issuance of the bills. The small amounts being paid by some property owners at the bottom highlights that the cost of collecting the tax could exceed the revenue benefits, especially if non-compliance is high.
The solid waste tax should be repealed.