With the Barbados economy yet to show signs of growth, the Barbados Economic Society (BES) says it is still waiting to see fundamental structural changes.
In his reaction to the latest Central Bank economic review for the period ending March 31, 2019, BES President Simon Naitram said while the tone of the Central Bank was optimistic there was very little new information.
He insisted that the country was in need of a change in how business was being conducted in order to encourage economic growth.
“We continue to await fundamental structural change. Barbados needs a change in how we do business, in who owns business, and in what type of business we do,” said Naitram.
“We need to open our markets to competition, democratise business ownership, and expand our business beyond the mono-crop culture. Our focus must be on the specific policies the Government pursues rather than the numbers alone,” he said.
“The economy has not yet shown signs of growth. Total economic activity was 0.2 per cent lower in the first quarter of 2019 than the first quarter of 2018. The Central Bank does not expect 2019 to be the year that growth returns. In fact, they have raised concerns about the IMF’s lowered expectations for global growth.”
Naitram pointed out that Government was pursuing a growth strategy that appeared to be “very dependent on foreign investment and foreign consumers”, adding that the Central Bank was concerned about stabilizing the economy to attract foreign investors once again.
“This is the same basic growth strategy that we have pursued for the past few decades,” said Naitram.
He argued that in order to protect the foreign reserves, the country has typically pursued a policy of dampening domestic demand, which is essentially reducing the purchasing power of average Barbadians so that there are less imports.
He said while last year’s tax increases worked to dampen domestic demand, as consumer imports fell 2.6 per cent in the first quarter of 2019 compared to the first quarter of 2018, this stands in stark contrast to the Government’s plan to lower personal and corporate tax rates as proposed in Budget 2019.
“The Government’s stated aim is to stimulate consumer spending. Stimulating consumer spending and dampening domestic demand cannot both happen at the same time. Much rests on selecting the correct strategy,” he advised.
Pointing out that Government needs to spend less money than it takes in tax revenue, Naitram also reminded that Government must “show restraint” in how it uses the Central Bank and how much it gives to statutory corporations.
Tax revenue was 13 per cent higher in the first quarter of 2019 than the first quarter of 2018. The overall revenue intake, which reached $2.99 billion for the fiscal year, was boosted by tax measures outlined in the 2018 budget, including the increased personal income tax rates and corporate income tax rates at the time.
However, seemingly suggesting that there could be an impact on revenue collection in the future as a result of the recent lowering of corporation tax rates and personal income tax rates, the BES head said “The Government announced lower personal income tax rates and corporate income tax rates in this year’s budget. Can improved efficiency in collection offset the forthcoming decline in tax rates?”
Commenting on the financial system, Naitram pointed out that while savings available for investment were growing “Barbados is putting less savings to productive use” and this “makes us reliant on foreign investment”. marlonmadden@barbadostoday.bb
