THE HOYOS FILE: The barrel has a bottom
“On the basis of a projected net gain of $200 million in additional revenue this financial year, plus projected additional expenditure savings of $30 million…we now project an end of year fiscal deficit of between 3.5 to four per cent of GDP on an accrual basis.” – Minister of Finance Chris Sinckler, 2015 Budget, Page 74.
IN HIS LAST BUDGET SPEECH, Minister of Finance Chris “Sir Taxalot” Sinckler was on a mission to reduce the deficit which his administration had watched balloon two years earlier to almost 11 per cent, and then reduced to the still very high 6.9 per cent.
For the current fiscal year now ending, the deficit was projected at around six per cent, but the minister of finance would not take that as inevitable. His solution was to apply more financial leeches to the economic blood supply.
All that money in circulation was killing off Patient Barbados, while causing the Government to maintain those high deficits, so a series of new tax measures was announced to extract another $200 million from circulation and use it to lower the fiscal deficit.
When the new Estimates are published some time this month, we will get a glimpse of how well Sinckler has succeeded in his mission. For now, two things suggest to me three little words: “Not so well.”
First, there are those Central Bank of Barbados estimates of revenue for the first three quarters (April – December 2015). Now, we all know that tax money doesn’t come in at the same rate every quarter, but the total tax revenue for the period is actually less than for the same period the year before: $1 624 million compared to $1 642 million.
Well, it’s only $18 million, so let’s say the tax take was the same for the first three quarters of both years. That means that the $200 million will all have to come crashing in during this last quarter, which ends in a few weeks, on March 31. Would you consider that (a) likely, or (b) unlikely? I say (b).
The second indication that Sinckler’s budget measures may not produce the extra revenue they were designed to can be found in a recent speech and comments to THE NATION by Minister of Commerce Donville Inniss.
Readers may recall that in justifying the further removal of allowances and incentives from personal income tax, Sinckler put these further impoverishing measures in the context of simplifying the job of the Barbados Revenue Authority, which found itself trying to cope with over 60 000 claims for tax refunds, some two-thirds of the 90 000 tax returns filed in total on this island of ours. And those claims totalled $68 million.
As one could imagine, this required “a high degree of human intervention”, as all of these claims for money had to be checked out.
Not to mention that “the current economic situation, which has affected the Treasury’s cash flow position”, had made Government extremely loathe to actually give anybody any money back at all.
So Sinckler took out his ministerial knife and gutted nearly all the remaining allowances, including the $10 000 deduction for home improvement and the $10 000 tax deduction for contributions to a registered retirement savings plan.
Perhaps of all the allowances these were the ones which helped the country most. The first one improved people’s living conditions, provided work for artisans and helped people qualify for mortgages.
The second helped ensure less dependence on an NIS pension, which considering the fund’s balance sheet, filled as it is with Government paper, may be considered a good hedge. But both were gone with the stroke of a pen.
Ernst & Young provided a chart that showed how much more in taxes a person earning just over $6 000 a month ($75 000 per year) with a spouse and two children would have to cough up in taxes, because that person’s taxable income would now be $40 000 instead of $23 500 if all of the deducations were taken.
It was almost double, at just over $3 200 more per year. To make sure that taxpayers were not “unduly disadvantaged” by these changes the minister of finance reduced the lower tax rate of 17.5 per cent to 16 per cent, and the higher rate of 35 per cent to 33.5 per cent. However, EY said that “the overall impact of this reduction in rates is negligible in comparison to the increased taxation resulting from the removal of allowances”.
Remember I noted that the estimated tax revenue up to December was more or less the same as for the previous year?
Well, although Sinckler put the additional revenue in income tax at a mere $9 million, according to the Central Bank’s estimate, the income tax revenue to December 31 was up by $15 million.
We end with Inniss riding up on his horse, offering possible relief. “Income tax relief is, er, may be, coming!” he proclaimed. The minister of commerce, who was addressing a St Philip South branch meeting of the Democratic Labour Party at Belair, said Sinckler was reconsidering “readjusting the tax rates”, and he told the newspaper after the meeting that “we need a lower tax burden across the system, especially for middle class Barbadians . . . . I think we need to get rid of some assets of the state so we can reduce the cost of doing business with the Government.” (DAILY NATION, Monday, February 29, Page 1).
In other words, in just a few words, Inniss not only admitted the Government had found itself scraping the bottom of the tax barrel where individual taxpayers were concerned, but acknowledged that it needed to go the only other route possible in order to lower its expenditure: privatisation.