AFTER SEVERAL YEARS of presenting the Financial Statement and Budgetary Proposals in the House of Assembly, the Minister of Finance ought to be doing better with respect to the clarity and certainty of his proposals.
The National Social Responsibility Tax is the reintroduction of the abandoned environmental levy with broader burden for the taxpayers and more serious implications for the cost of living.
The minister delivered the following words in the Budget: “The levy will be applied at two per cent on the customs value of all imports at the border with the exception of goods for the manufacturing, agriculture and tourism sectors as covered under existing primary legislation such as the Fiscal Incentives Act and the Tourism Development Act. These are being excluded so as to avoid any double taxation since the two per cent tax must also be applied on domestic output to ensure fair treatment under WTO and CSME regulations.”
Apparently the Press interpreted the words above to mean that the tax will not be applied to the manufacturing, agriculture and tourism sectors. This interpretation might have come from not taking the time to know what is contained in the two acts cited above. For one, the Fiscal Incentives Act is designed to encourage local manufacturers to export. It partially explains why there is a lot of discussion on why local goods are being sold for less in countries within CARICOM.
In the case of the Tourism Development Act, the main purpose is to make local tourism services as competitive as possible with the rest of the region. Both acts are not the simplest to interpret. Therefore in a political environment, where understanding policies is second to creating impressions, there is a failure by the Press to put the emphasis where it should be.
Minister Chris Sinckler is free to confuse himself and by extension his followers. But this confusion ought not to be sold to all and sundry.
The food and beverages sector accounts for approximately a quarter of industrial production in Barbados. The sector is not a large exporter. Therefore, the two per cent tax will be borne by almost the entire production and paid by Barbadian consumers.
Furthermore, all imported food and beverage goods consumed by Barbadians will attract the tax as well. Since the average Barbadian household spends almost 40 per cent of its income on food and beverages, the implications of the tax are self-evident. There is no need to play Donald Trump and accuse the private sector of price gouging. The “Trumpism” is intended to shift the spotlight away from the Government’s inability to handle policy on to some other thing or someone else.
A National Social Responsibility Tax that uses “levy” as a disguise is apparently implemented to help finance health care, especially for the poor. The tax proceeds to take more from the poor than the rich. Where is the social responsibility? It continues to be farcical that a failed Government uses its failure to inspire Barbadians to pay more and receive less.
In the face of the Government benefiting more than Barbadian consumers from the drop in oil prices, the national tax will cause at least a doubling in the inflation rate. This would further compound the already bad condition of the taxpayers and consumers. In the words of the calypsonian, rice gone up, flour gone up, bread gone up, cement gone up and the money gone down.
In the short term, the rising inflation ought to have implications for the level of the savings/deposit rate in the banking system. When money is on the bank and prices are rising, the money has less value. In short, it is time to consider increasing deposit rates, especially in light of the upward trend in the United States.
The two per cent tax is too much to carry on top of all that Barbadians have been asked to do in recent years. Furthermore, the burden is greater than if the Government had increased the VAT rate by two percentage points.
The irony in all of this is that the manufacturing and tourism sectors, which the Minister of Finance thought he was shielding, are actually going to be harder hit than if the VAT rate was increased. This is because of how the VAT works. Another key is knowing what is in the two acts cited above.
In the past, it was possible to give Minister Sinckler the benefit of the doubt with respect to the fumbling of policy initiatives. But the passage of time does not so permit any longer.
• Dr Clyde Mascoll is an economist and Opposition Barbados Labour Party advisor on the economy. Email: clyde_mascoll@hotmail.com
