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BES weighs pros, cons of measures


SHAWN CUMBERBATCH, [email protected]

BES weighs pros, cons of measures

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Government’s “aggressive” Mini-Budget will achieve important fiscal and debt objectives, but the Barbados Economic Society (BES) fears some measures “could potentially have an adverse impact on economic growth”.

Responding to yesterday’s Mini-Budget delivered by Prime Minister and Minister of Finance Mia Mottley, BES president Shane Lowe said the presentation showed Government’s intention to quickly achieve a balanced budget.

He said the measures not only allayed some concerns raised by the BES and International Monetary Fund, but would simultaneously reduce and potentially eliminate the fiscal deficit in one year.

“The new administration’s decision to default on external debt, clear intentions to restructure domestic debt, and no preference to rely on future Central Bank financing suggest that the Government had few options to finance a large recurring fiscal deficit going forward,” Lowe said.

“Thus, potentially eliminating the deficit in one year reduces the need to ask both domestic and external creditors for additional financing over the next nine to ten months pending completion of debt restructuring negotiations.”

However, he noted that “shifting the tax burden to higher-income earners (including some workers in the middle class and corporations via a higher corporate tax rate) directly reduces their disposable income and may potentially reduce their level of spending”.

Lowe said this was something that “could potentially have an adverse impact on economic growth”.

He also said “the increased economic activity from the proposed $131.5 million additional to be spent on capital expenditure and greater disposable income for likely budget-constrained lower-income earners will need to more than offset any negative impacts on the middle class to ensure economic growth does not decelerate further”.

“Additionally, the announced taxes on tourists will likely reduce Barbados’ price competitiveness as a tourist destination. Therefore, the proposed upgrades to physical infrastructure and other enhancements to the quality of Barbados’ tourism product are necessary to ensure no shortfall in growth in visitor arrivals and expenditure,” Lowe said.

Lowe noted that overall the Budget sought to “widen the tax base and shift the burden of taxation from the most vulnerable in society.

“Direct taxes on higher-income earners such as the new 40 per cent tax rate on workers’ annual earnings over $75 000 and the health levy imposed on all workers seek to shift the relative burden of taxation from low-income earners who are more likely to disproportionately consume public health care services to higher-income earners who have greater access to private health care and medical insurance,” he said.

“Additionally, announced taxes on tourists help to replace some of the lost foreign-earned revenue from the International Business and Financial Services sector and reduces relative taxation on locals.”

Regarding the Health levy, Garbage and Sewerage Contribution and taxes on airfare, accommodation room rates and tourism products, the BES representative said these measures “provide specified funding to key state-owned entities who normally consume a significant percentage of the government transfers to public enterprises – the Barbados Tourism Marketing Inc., Sanitation Services Authority, and the Queen Elizabeth Hospital – and reduce the level of annual transfers necessary to these entities”. (SC)

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