The first Estimates laid by the eight month-old Mia Mottley administration on Tuesday, is highly ambitious for its projected revenue haul – indicating more burden to come for the middle class, a respected economist has said.
University of the West Indies lecturer and former head of the Barbados Economic Society, Jeremy Stephen, is puzzled by the projected uptick in Government’s revenues, noting that there is little movement by way of growth or foreign direct investment to justify this. He said he is concerned that the Government’s projected increase of $163 million in income tax revenues and profits will not augur well for the middle class.
He also suggested the Government’s projection of a $32-million deficit – slashed from the one-billion-dollar deficit proposed for this financial year by the previous administration – may be “unrealistic”.
Stephen told Barbados TODAY: “Government revenue has actually increased. It is normally estimated to be around the $2 billion mark but has now climbing to the $3 billion mark and this definitely points to some sort of burden, particularly when you are cutting back on capital expenditure. From what I have seen there is a closing of the gap in income tax and Value Added Tax (VAT). So it definitely means that there is bigger burden to be shared by the average person.”
Stephen noted that this move is consistent with the International Monetary Fund-approved Barbados Economic Recovery and Transformation (BERT) plan.
In its revenue projections for the new fiscal year which begins in April, Government is to rake in $1.48 billion from goods and services, $1 billion from taxes on income and profits, $216.5 million from taxes on international trade and $186.7 million from taxes on property. At the end of last fiscal year, Government’s intake from income tax was calculated at $837.6 million.
But the economist was not prepared to speculate on what form the burden would take, noting that new taxes or collection of owed taxes are all likely options open to Government.
Stephen said: “I can’t speculate on whether or not there would a new tax. That would be made known in the Budget. What is clear is that they expect more taxes and it is clear that it is going to be done by personal income taxes. That jump in income tax cannot be from corporate taxes because there are not enough companies in Barbados nor has foreign direct investment jumped that immensely in the short term. So sadly that means that there would be more burden either via compliance, introducing new taxes or shifting rates around.”
He argued that this is especially worrying when one considers Government’s plans for wide cuts in capital spending, which often signals a short-term slow down in the economy.
He said: “I saw that there was a significant slash with regard to capital expenditure and I am sure that Government’s economic team knows that slashing capital expenditure normally redounds to a surplus potentially on the capital side but it definitely will also redound to a slow down in the economy. Although we are seeing increases in allocation for some ministries, the problem is slashing capital across the aboard as opposed to showing a re-purposing of expenditure that is moving towards triggering growth in the economy.
The respected economist also declared that the projection of a deficit of $32.369 million for the new financial year was the smallest he has ever seen. Acknowledging that it was not the first time that Government has set an ambitious targets in Estimates, Stephen said he expected the Government to be flooded with requests for supplemental spending.
Even as he expressed hope that Government is able to meet expectations, Stephen added: “No Government Estimates are ever realistic because sadly the process of budgeting is one where people just put increments on top of expenditure or asked to remove certain line items and then are trapped during the year with asking for supplemental. So the realistic nature of this is questionable and supplementary is going to be name of the game until Government starts budgeting on a bit more rigour. I have never seen a deficit this small in my professional life, which begs the question of how realistic it really is.”