Barbados Labour Party (BLP) economic advisor Clyde Mascoll is proposing that Government makes it mandatory for the hotel sector to pay a tax in foreign exchange in order to help shore up the island’s struggling international reserves.
The economist put forward the idea on Monday as he stoutly defended the BLP’s plan to restructure the country’s debt while removing the National Social Responsibility Levy, scrapping the road tax for a tax at the pumps, and reducing the Value Added Tax (VAT) from 17.5 per cent back to 15 per cent after two years, should that party form the next Government after the May 24 general election.
In its recently released manifesto, the BLP said it would also increase non-contributory pension, a plan which critics, including former Prime Minister Owen Arthur have dismissed as “pie in the sky” and “madness” that could force the National Insurance Scheme (NIS) into bankruptcy.
However, taking part in a Barbados Economic Society (BES) forum today at the Lloyd Erskine Sandiford Centre on Plans for Economic Adjustment: Post General Election, Mascoll insisted that the BLP’s proposals were sound.
“The notion that a policymaker would seek to bankrupt the NIS or seek to advise a Government with such recklessness is unfounded,” said Mascoll, while insisting that there was need for the tax system to be simplified, and anyone who did not understand the proposal of replacing the road tax with a tax at the pumps “must be someone who doesn’t want to listen”.
Mascoll said in addition to the proposed changes in taxes, Government would also have to address the high debt and falling reserves through “a mixture of defensive attacks”.
“We are proposing that there has to be some kind of reform, simplification of the tax system in a way that permits us to not only defend, but to attack,” he said, adding that the most sustainable way for growth in the economy would also require capital expenditure by Government and private sector investment.
The university lecturer suggested that Government makes legislative changes in an effort to make hoteliers pay a tax in foreign currency, pointing out that there was speculation that the country was not getting enough of the earnings from the sector.
“The taxation in tourism can be rejigged and altered in such a way that you ask or make the hoteliers pay a tax in foreign exchange. If there is a room tax on a hotel, the tourist pays that tax. A VAT should not discriminate,” he said.
“What could be so wrong in asking the hoteliers to pay some of their tax in the form of foreign exchange. What will happen is that money then goes directly to the Central Bank through the Treasury. So you don’t have to wait until a commercial bank feels its okay to sell the Central Bank,” the former Central Bank employee said.
He questioned why Government was reporting that the tourism sector was performing “extremely well”, but at the same time saying that global economic environment was “responsible for our plight”.
“I have been trying to figure this out now for a decade. How it is that the external environment is responsible for Barbados’ bad position, but yet still tourism is growing. I have not yet been able to reason it out,” Mascoll said.
In his presentation, leader of Solutions Barbados Grenville Phillips II warned that the country was on the brink of economic ruin, while insisting that it was a result of mismanagement on the part of successive Democratic Labour Party and BLP administrations.
Highlighting the country’s high debt, and “excessive” borrowing by the last administration, Phillips suggested that if Government wanted to go to the IMF for assistance it should have done so “no later than 2009 when people still had sufficient savings to cushion the foreseen austerity”.
He said three years ago Solutions Barbados had published its “non-austerity option” that would provide the island with “a surplus in our first year”, adding that it was independently assessed and deemed “workable”.
Phillips said that economic plan did not require debt restructuring, but without giving details, said it would call for addressing “the structural issues in the economy”, “without laying off a single civil servant [and] without reducing any of their salaries”.
It would also include the “elimination” of the VAT.
However, Mascoll dismissed the plan, saying it was “voodoo economics” because it was impossible to realize a surplus without the VAT, which was one of Government’s most significant revenue earning measures.
“I heard some voodoo economics earlier that you can get rid of a billion dollars in VAT and still have a surplus and there is no austerity. I need to find which planet I can go to in order to understand that economics,” said Mascoll.