NOT ALL BLACK AND WHITE: How Sinckler strangled Barbados’ economy
MINISTER OF FINANCE Chris Sinckler recently sought to justify the hole he has dug in people’s pockets by blaming the global recession of 2008-09, which, he said, had caused a decline in international business “to the extent where our corporation tax revenues have dropped about $200 million dollars”.
As a result, he added “A lot of those allowances and claims which you see in the tax system . . . that [the Arthur administration] was able to do pre-2007, were predicated on that amount of money being made available.”
I wondered how best to check out Sinckler’s position – which is the standard one of the Dolittle administration – that none of this was their fault, and they only did what they had to do to save the economy.
I decided to update a spreadsheet I had been compiling on Barbados’ “Big Six” taxes – including corporation tax – to see how they had weathered the past five years.
The answer is: Not so good.
First, Sinckler is right: corporation tax revenues are indeed down, by $230 million over that time compared with the Government’s Estimates. Instead of bringing in $1.327 billion, they brought in $1.097 billion. But they are starting to grow again.
On income tax, the Government was able to restore its position by removing more and more allowances. The tax for the year just ended is expected to reap almost half a billion dollars ($494.6 million). However, over the five-year period, the income tax brought in $32 million less than expected.
VAT: as the income tax began to rise again, the VAT was going the other way. VAT revenue fell to $806.1 in 2014-15 from $905.7 million the previous year. Overall, for the five-year period, VAT brought in $260 million less than budgeted.
The current expectation (the Revised Estimates) for VAT in 2015-16 is $881.4 million, having removed so many items from exemption and zero rating.
Excise taxes brought in $81.1 million less than estimated over the five-year period, while import duties brought in $36.1 million less. Land tax was the only one of the Big Six to surpass its estimates, bringing in $33.9 million more than projected for the period.
In total, despite some of the recovery noted above, these Big Six brought in just over $600 million less over the past five years – $9.962 billion compared with the estimates of $10.568 billion.
And that shortfall is roughly the same as the total shortfall in Government revenues over the same period of $592 million ($12.240 billion compared to estimates of $12.832 billion).
My little five-year report suggests that it was much more than the fall in corporation tax revenue which strangled the economy: It was also the inability of the consumer to help it to grow since his and her discretionary spending was removed by the Minister of Finance.
The more people have to spend on their income taxes, the less they are likely to buy things at the supermarket, in the stores and malls, or in employing others to assist them at work or at home. In the bigger countries, economists are now taking about “helicopter” money – that is, bringing in money to put into consumers’ hands in the hopes that they will spend it and not just put it in their bank accounts.
No wonder then that Sinckler is now changing his tune, admitting that money has to be put back into people’s pockets, saying: “We have to find ways in which we can help Barbadians to have more disposable income, as I said, without having to go through this process of claiming for everything.”
Patrick Hoyos is a journalist and publisher specialising in business. Email: email@example.com