The private sector has poured scorn on the revenue raising measures outlined in the 2017 Financial Statement and Budgetary Proposals, saying they were regressive, lacked clarity and would lead to a steep rise in the cost of living.
President of the Barbados Private Sector Association (BPSA) Charles Herbert said the tax measures outlined by Minister of Finance Chris Sinckler would be “pain without gain” for individuals and businesses, and described the planned savings in expenditure as nothing but “smoke and mirrors”.
In his highly anticipated presentation on Tuesday, Sinckler announced a whopping 500 per cent increase in the contentious National Social Responsibility Levy (NSRL), raising it from two per cent to ten per cent; an increase in the excise on petrol and a new two per cent fee on foreign exchange transactions.
Sinckler also said Government expected to gain at least $100 million from the sale of the Hilton Barbados Resort, while shaving ten per cent off the approved March 2017 Budget estimates.
However, private sector pundits said they were unclear as to how the two per cent tax on foreign exchange transactions would be implemented, reflecting the confusion that surrounded the NSRL when it was introduced last September, nor did they know how long the new measures would remain in place.
Speaking yesterday at a post-Budget breakfast seminar organized by the Barbados Chamber of Commerce and Industry (BCCI) and PricewaterhouseCoopers (PwC), Herbert stopped short of saying businesses would shut down and retrench workers. However, he made it clear now was not the time to sugarcoat things.
“We know this is a recessionary Budget that is going to drag GDP [gross domestic product]. There is no question about it. We know that all our staff are going to have a cost of living increase approaching ten per cent. They are going to expect wage increase.
“So even though those taxes are not directly on us it is coming back to our cost of doing business. So let’s get real and stop talking about all the good things that might happen or might not happen. We know exactly what is going to happen. So let’s get real. Our economy cannot survive with a Budget that will push us into a recession and will not raise the money that it is projected to raise. Let’s get real and don’t soft soap it,” he said, to applause.
While stating that Sinckler was right in recognizing the persistently high debt had made the fiscal deficit the “number one enemy”, Herbert disagreed with the minister on the measures proposed to address the problem.
“He has chosen to close the deficit essentially by increasing revenue by $320 million rather than reducing government spending where the proposed only specified cut of $82 million. And that is smoke and mirrors.
“We believe that this is wrong and will be disastrous to the economy because while it does address the deficit it has the entirely wrong effect on the cost of doing business in Barbados, our competitive position in the world and ability to grow in the medium-term. We believe that these measures will depress economic activity due to a sharp rise in prices of ten to 13 per cent. The GDP will fall, making the debt as a percentage of GDP to rise and more difficult to service,” Herbert predicted.
Not holding back, the business leader charged that the tax measures would “severely threaten” economic stability and growth, dampening the confidence of the private sector.
Seemingly disappointed that Government had totally rejected the recommendations from two working groups established by Prime Minister Freundel Stuart in early March, Herbert said the deficit reduction proposals that emphasized expenditure reduction would have caused similar short-term pain, but would have made Barbados less expensive and more competitive, while encouraging growth and stability.
BCCI President Eddy Abed maintained the theme, warning Barbadians to brace for a steep rise in the cost of living.
Though lauding Sinckler for taking painful steps to raise revenue, Abed questioned the measures and wondered if they had not come too late.
“We would have liked to see a more balanced approach where the expense side is dealt with proportionately perhaps as how the revenue side would have been dealt with.
“My immediate concern is there will be an increase in the cost of living. We expect that there will be a dampening of demand by consumers. Many of our companies through the Chamber’s membership are extremely lean and there is absolutely no way we can absorb this. It’s going to be passed on,” he warned.
Abed said there was a lack of clarity in relation to some of the measures, which were “here to stay” since there was no matching action to drive down expenditure.
“To me this is now part of the cost of doing business, which sadly will drive up the non-competitive cost in Barbados, because none of what has been done, none of these revenue raising measures have been tied to productivity, none of this is being indexed to performance indicators,” he explained.
Also joining the chorus of criticism was President of the Barbados Bankers’ Association (BBA) Donna Wellington, who said not only would the two per cent fee on foreign exchange transactions make “everything more expensive” for bankers and the public, it also turned the financial institutions into tax collectors.
“The commercial banks and other sellers of foreign exchange will be tasked in tax collection basically, and that is something that we are not currently set up to do, but we would have to make ourselves prepared to do so,” Wellington said.
“It needed to be a budget that appealed to the masses. It needed to be a budget of electability. Unfortunately, however, it also demonstrated short-term pain and no long-term improvement,” added a critical BBA head who also called for clarity on how long the measures were expected to remain in place.
Amid the cries of woe, Chairperson of the Barbados Hotel and Tourism Association (BHTA) Roseanne Myers found something in the Budget that pleased her.
Myers was happy that Sinckler had not raised the 7.5 Value Added Tax rate for the sector.
However, she was worried the NSRL rise and the two per cent commission on foreign exchange transactions would have dire consequences for the sector, particularly the medium and small businesses.
The BHTA top official added that the increases in the excise on petrol would also hurt the industry “because transportation is a big factor in the tourism sector”.
Meanwhile, Oliver Jordan, government and public sector leader for PwC in the Caribbean, said the budget did not go far enough to address the critical issue of expenditure reduction.
“While it focuses on . . . the deficit and foreign reserves it did not focus on how do we actually grow the economy,” Jordan said.
In addition to the promised growth plan to be implemented before October, the private sector officials were generally pleased that the promised duty-free zone would soon become a reality.