ON THE RIGHT: No long term gains in reform proposals
An introduction to these taxes is one that is a bit hard for me to swallow as an economist and even with my other hat as a financial analyst.
The reason is most of these taxes are actually quite pro-cyclical – taxes like these tend to benefit the medium term for the economy at large only when you are on the upswing.
For instance, removing incentives. I do not agree with removing incentives – especially investment-driven incentives – particularly when the recovery that Barbados should expect will be driven on investment.
Tax rationalisation is good. The Government always had a structural issue from as far back as the [Barbados Labour Party] to as current as the [Democratic Labour Party] with tax administration.
Now the issue that is probably 20 years too late is being addressed. So with that being said, many of these International Monetary Fund (IMF) recommendations would not necessarily solve Government’s fiscal issues in the short term.
If you study the kind of behaviour that is going on in society right now, in the short term it is very clear Government does not have the administrative resources or cost resources to manage the implementation of many of these taxes.
Tomorrow, the Minister of Finance could easily go and implement many of these short term measures and I can guarantee you might get a nice upswing at the end of the fiscal year, because it’s just numerical, but going into the next fiscal year behaviours would ensue.
There was a consideration for charging VAT on the sale of new properties, which to me is the most asinine and stupid suggestion the IMF could really make.
The reason being that most of the taxes are considered on consumptive resources.
Barbados is 80 per cent consumption driven; therefore one would think if you can broaden the tax base on consumptive items you would get more revenue. Quite simple mathematics.
The problem goes into the realm of investment, which is down in the 15 per cent region. People view real estate as an investment good, not a consumptive good.
The IMF also made reference, for example, to the fact that it was well implemented in countries like Australia, New Zealand and Canada, all of which have very highly liquid real estate markets.
For example, you could treat a house like how you treat food. You have easy access to finance, you could easily pass on the cost that you inherited via the VAT to the next person. So by considering a structure like that in the medium term is asinine, because it could essentially freeze the middle class housing market.
Most of these taxes have to be taken under serious consideration. It’s not a numbers game.
Most of the recommendations or taxes are very pro-cyclical – they only can truly benefit the Government on the upswing. The true problem in Government right now is interest costs, and when you deal with that or you can bring a recommendation to the fore in managing your interest costs, then see me again.
There is still no distinction between whether the inefficiencies within the public sector can be corrected during an exercise like this that is being promoted by the IMF.
There were many different proposals. None of them addressed how those taxes would be collected.
• Jeremy Stephen made these remarks at the Institute of Chartered Accountants of Barbados’ public forum last week. Jeremy Stephen is president of the Barbados Economic Society.