City of Bridgetown (COB) Co-operative Credit Union President, Christopher Oliver, is pushing for less taxation to increase the spending power of Barbadians. However, Minister of Finance Chris Sinckler is contending that Government has reached the limit where tax reductions are concerned.
This exchange of opposing views on taxation and how it can be used to spur economic growth and pull the economy out of a seven-year-long downturn, came at the opening of the COB’s third customer service outlet in Carlton Plaza, Black Rock on Saturday.
Warning that “higher tax and lower spending is not popular”, Oliver argued that lower taxation increases the purchasing power of consumers, and this is what Barbados needs to jumpstart the economy which Government says is emerging from the downturn and is on course to post a one per cent growth this year.
“Without a buyer and a spender, there will not be any economic activity. To prevent the downward spiral, there has to be spending. If the ailing private sector cannot provide enough spending, we will need someone else to resuscitate the economy during a recession,” Oliver said.
He added: “Economists recommend injecting Government funds into the economy without increasing taxes, [and] a recession maybe one of the few exceptions in which economists can justify deficit financing”.
Oliver contended continuous tax increases over the years are having an all-round impact on credit union members and that rebounds onto the credit unions themselves. “It leads to high delinquency for lending institutions and this is our major concern,” he said.
He coupled the delinquency with the impact of a recently introduced tax on credit union savings that has COB paying some $200,000 to Government every quarter.
Oliver said that lower spending leads to reduced public services, and higher income tax could create disincentives to work.
“The main criticism of pursuing fiscal policy is the reduction of aggregate demand. The side effects on public spending leads to challenges in the social programmes of education, health care, infrastructure.”
Addressing the opening ceremony after Oliver, Sinckler expressed agreement with the COB President in relation to spending. “But as a country when you overspend, sometimes you have to pull back from the precipice,” he said.
Alluding to an already high consumer spending rate by Barbadians, the Finance Minister said, “You don’t cure an alcoholic by inviting him to drink.
“In the context of what we are dealing with economically, fiscal consolidation is the mantra for the time being, because we have to protect our foreign reserves, ensure that we stabilize our public finances, ensure that we lay the platform for the kind of economic growth that will support the social services that we all enjoy almost free at the point of delivery.”