A BUDGET is a snapshot of the Government’s fiscal condition at a point in time. So to put the 2015 Budget in its proper context, we need to look at the video of the past seven years. It reveals a tale of two entities – households and businesses – that continue to make significant sacrifice to prop up the Government.
Prior to the recent Budget, households, in the face of little or no salary increases, have paid just over $100 million more in income taxes since the end of fiscal year 2007/2008. These higher payments resulted from taxes on allowances, removal of allowances for investment and some incremental increases in income over time.
In addition, Barbadian households have paid almost $45 million in consolidation tax; $30 million more in property tax and the better part of the $36 million collected from the solid waste tax.
In essence, on the income tax side alone, Barbadian households have forked out over $200 million more in taxes over the last seven budgets. This is just under $2 400 more per household.
However, for the households that pay the majority of taxes mentioned above, the average increase was about $7 200 more.
The evidence shows that approximately 72 per cent of the total number of taxpayers earn less than $50 000 per annum. They account for 25 per cent of the gross taxable income, leaving the other 28 per cent of the taxpayers to pay about 75 per cent of the taxes on income.
These figures are not shocking as the consolidation tax is paid by taxpayers earning $50 000 or more per year. Furthermore, it is safe to assume that persons in the same income category pay the majority of residential property tax. In fact, the tax is designed to provide relief to properties valued at $150 000 or less.
Smaller economy
It therefore comes as no surprise that the Barbados economy is smaller in 2015 than it was in 2007. This is a direct consequence of reduced consumption expenditure resulting from lower household income in the face of rising unemployment, increased taxation and lack of adequate salary increases. This was exacerbated by declining public and private sector investment.
The extraction of more income from households in the 2015 Budget will add to the difficulty in returning growth to the Barbados economy. While still targeting the usual taxpayers, especially with the removal of income tax deductions and higher property taxes, the recent Budget went after all income classes.
The imposition of VAT on several items in a food basket that was VAT-free is the clearest evidence of the desperation of the Government to raise revenue. Abandoning the most vulnerable with respect to VAT with the cutting of the reverse tax credit a few years ago continued with the change in VAT on food.
On the business front, taxation continued to be used to increase the cost of doing business in an environment of reduced household spending. The taxation included the solid waste tax, the VAT, the property tax and a tax on assets in the case of financial institutions.
As a consequence of the unfavourable business environment, profits have fallen. The reduction in corporate taxes over the last seven years is a reflection of the environment as well as the poor state of the international business sector.
After holding strain in the immediate aftermath of the world economic recession, well over 16 000 jobs have nevertheless been lost in the private sector. This contributed to the loss of income among households. In addition, some households were forced to withdraw some of their savings in the banking system.
Less interest
Unfortunately, whatever savings are left in the commercial banks will now earn much less interest. In the circumstances that are better appreciated when we look at the video rather than a snapshot, fewer households will be able to put aside money for five years in the Government savings bonds. Why should anyone be surprised that Barbadians are moving money from the banks to savings bonds?
Barbadians earning between $50 001 and $75 000 per year have carried an extraordinary burden that got worse with the recent Budget. The absolute and relative burdens increase in the higher income categories. Notwithstanding these sacrifices, the Government is still having difficulty financing its fiscal deficit.
After institutional investors had to reconsider investing in Government long-term securities and the National Insurance Scheme reached its limit for exposure to Government securities, the Central Bank has printed lots of money and made losses.
The 2015 Budget has turned to households and businesses once again, rather economic growth, to finance the fiscal deficit.
• Dr Clyde Mascoll is an economist and Opposition Barbados Labour Party adviser on the economy. Email mascoll_clyde@hotmail.com.
