Economist Dr Michael Howard believes Prime Minister Mia Mottley did not go far enough with the austerity measures outlined in today’s so-called mini Budget.
While she announced a number of sweeteners, including a five per cent pay rise for public servants, the removal of the much-hated National Social Responsibility Levy (NSRL) and increases in non-contributory pensions – all election campaign promises – Mottley also imposed a series of taxes as part of her $1.2 billion austerity package.
Howard said while he supported some of the tax measures, the cuts in expenditure were not deep enough and would not satisfy the International Monetary Fund (IMF), which concluded its mission to Barbados just last week.
“The Budget has the austerity philosophy which I supported even though the expenditure side of the Budget is very much weaker in terms of austerity than the taxation side. I believe that the IMF would require sharp reduction in the expenditure given its connection to the foreign exchange,” Howard said, while expressing concern over the abolition of the NSRL.
In her 90-minute presentation outlining the way forward for the economy, Mottley announced plans to raise the minimum non-contributory pension from $155 to $225 per week beginning July 1, 2018, in addition to the pay rise for civil servants, an end to tuition fees for students pursuing undergraduate studies at the University of the West Indies and the removal of road tax, to be replaced by a 40-cents-per-litre tax at the pump for gasoline and diesel, and five cents for kerosene.
However, Howard, a retired UWI professor, insisted that a pay increase was not fiscally prudent as Government ought to be cutting, not increasing, wages.
“The issues of expenditure relates to the raise in wages and pensions. This to my mind is the most glaring deficiency. I believe public sector wage costs should be significantly reduced, rather than increased. “This would be of concern to the IMF because of the expenditure and high debt burden accounts for our foreign reserves being where they are. I believe that the IMF would advise Government to further cut expenditure,” he stressed.
As part of the three-year, $1.2 billion austerity package announced today, Barbadians will contribute to the upkeep of most social services, including health care, garbage collection and transportation.
This is by way of a Health Service Contribution at a rate of 2.5 per cent, with 1.5 per cent of incomes being paid by employers and one per cent by employees, as well as a hotel room tax of US$2.50 per night for the B Class properties and apartments, US$5.50 for the A Class and US$10 for the luxury hotels.
Effective August 1, 2018 there will be a ten per cent tax on all shared economy such as Airbnb and Homeaway, and, effective October 1, 2018, an Airline Travel and Tourism Development Tax of US$35 for passengers flying within the Caribbean Community (CARICOM) and US$70 for those flying outside CARICOM.
However, Howard argued that it was unfair to demand that visitors pay for Barbados’ debt burden.
“I do not believe that tourists should bear a heavy part of the burden for consumption and high levels of debt and there were some taxes on tourist at the airport and this is a case of punishing the goose that lays the golden egg,” he stressed.