A former Solutions Barbados spokesman has criticized Prime Minister and Minister of Finance Mia Mottley’s mini Budget, saying it was more a political statement than an economic one.
“On the surface, these measures appear to be both political and fiscal in nature. However, close analysis of this mini Budget shows that the political objectives committed to may in fact mitigate any financial gains sought, and if anything, far from bringing economic improvements, they may make Government’s financial problems worse,” charged Scott Weatherhead, who was the party’s Christ Church East Central candidate in the May 24 poll.
However, while making it clear that he was speaking as an independent and not as the Finance and Economic Affairs spokesman for Solutions Barbados, Weatherhead explained that in keeping with the Barbados Labour Party’s manifesto promise, the National Social Responsibility Levy (NSRL) is to be repealed by July 1 at a cost of $147 million per year in lost revenue.
He also pointed out that free tuition is to be restored at the University of the West Indies by September at a cost of at least $120.5 million per year and that non-contributory old age pensions are due to increase from $155 to $225 per week, amounting to $18 million more per year or “a whopping 45 per cent increase in costs to the already burdened NIS [National Insurance Scheme] pension scheme”.
As part of Monday’s $1.2 billion austerity package Mottley also announced an across-the-board five per cent increase in public workers’ salaries at a cost of $60 million for one year, as well as a repeal of road tax, which is to be replaced with a fuel tax that is expected to earn $15 million more per year.
“If we calculate the net effect of these measures so far, they equate to $330.5 million in increased costs to Government annually, not including the increased cost due to the unprecedented size of this Cabinet, or the unknown actual cost of the UWI tuition over the next year as unprecedented numbers of students now seek to enrol,” Weatherhead cautioned.
He also attacked Government’s revenue earning measures, in particular, those which impact the bread-and-butter tourism sector, while warning that Barbados was pricing itself out of the competitive market.
“We really have no decisive differentiator as a tourism destination. There were also no initiatives outlined in this Budget to support or grow the tourism sector, only to harm it with taxes,” he said in light of the introduction of 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, 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 luxury resorts, a ten per cent tax on homestay programmes and a levy on tourism services.
As for Government’s plan to charge VAT on online purchases effective October 1, Weatherhead said: “On the surface, this appears less of a VAT, and more of an increase in the Foreign Exchange Commission from two per cent to 17.5 per cent to be applied to online purchases only.
“This means that citizens will now pay VAT twice on purchases of foreign goods online to be imported, and once on the purchase of foreign services online,” he added while also taking issue with the proposed five per cent increase in corporation taxes.
“This is unlikely to raise much, if any, additional revenue, since corporation taxes are calculated on profits, and in a further depressed, over-taxed economy, it is unlikely that businesses will see increased profits,” the businessman said, adding that “those very large businesses who do make sizeable profits that could contribute increased corporation taxes, will now have a greater incentive to avoid corporation taxes through creative offshore corporate structures”.
He also said the decision to increase the highest bracket of personal income taxes to 40 per cent on annual earnings of over $75,000 amounted to a “tax grab” on high income earners that would likely be met by greater overall tax avoidance in the upper income category, through creative pay structures.
Therefore, “rather than increasing income tax revenue, it is likely to decrease it,” he said while cautioning that Mottley’s remedy simply could not solve Barbados’s financial problems, and will certainly not result in a balanced or surplus budget in one year”.
“I expect this budget to not only raise less money for Government this fiscal year over the last, but to increase expenditure and debt, particularly in respect of the UWI and the NIS. Far from reducing last year’s $447 million fiscal deficit, this budget, I believe, will increase it,” he said while lamenting that no measures were announced to stimulate exports or increase foreign exchange earnings in any meaningful way.
“Without significant tax reform, including a complete change of the tax system and the financial structure of Government; and without major restructuring of the public service, significant divestment of state assets, extensive privatization, a holistic redesign of our tourism product, and significant increases in the productive sectors, our foreign reserve will continue to decline, eventually leading to painful IMF [International Monetary Fund] emergency intervention.
“I wait to hear of what measures will be announced to boost the productive sectors and stop the bleed of the foreign reserve, because I have not heard a single one so far,” Weatherhead said, adding that “it will be difficult to negotiate with the IMF and maintain these political budget measures, so let us hope that they work”.
The party which secured the third highest number of votes in last month’s general election is throwing its support behind the bittersweet economic medicine prescribed today by Prime Minister Mia Mottley to drag the economy from the brink.
Weatherhead’s position is in contrast to that of Solutions Barbados leader Grenville Phillip II, who threw his support behind the so-called mini Budget, contending that the state of the economy left Mottley with little choice but to go the austerity route.
Phillips, who party received 4,188 votes or 2.72 per cent of the ballots cast in the May 24 poll, also spoke kind words about Mottley’s spending priority, saying it showed she “genuinely cared for the people of Barbados”, while he praised the BLP administration for spreading the pain equitably instead of heaping the burden on one subset of society.