Economist: Adjust tax policy stance to ease prices

by Marlon Madden

One noted economist is warning the Mia Mottley administration to be careful not to compound the rising inflationary pressures by way of its policy stance.

In fact, Carlos Forte is proposing that Government urgently finds ways to provide an ease on taxes to help keep consumer prices stable and businesses open.

He stated that the call from the business community for an ease on import duties and review of other taxes was justified.

While acknowledging that rising prices were driven by external factors including supply chain disruption, geopolitical instability and oil prices, the Canadian-based Forte maintained that Barbados could still do things within its powers to help keep some prices stable.

“Government should not by way of policy compound those inflationary pressures, and in effect that is what it is doing by not adjusting its tax policy with respect to duties and freight charges.

The absence of doing so and for so long, compounds those inflationary pressures,” said Forte.

“Barbados has a high import duty regime and if something that costs $10 increase by $5 on account of this global inflation, when it gets to Barbados that increase is compounded further by the duty regime.

“So the call by economists and more recently the business community have some justification there.

“It isn’t just about do they want to be more competitive so they need a break. It is about Government policy by inaction that is making a bad situation worse when there are the policy tools to adjust and provide some ease of those inflationary pressures,” explained Forte.

In outlining several areas of concern recently, the Barbados Chamber of Commerce and Industry (BCCI) told Today’s BUSINESS that Government could help provide some relief over the short to medium-term.

“The cost of doing business has to be addressed as it relates to energy cost and the cost of imported items.

Government needs to focus on ensuring a business-friendly environment in Barbados and its ongoing digital transformation initiative should help,” said BCCI Executive Director Misha Lobban-Clarke.

BCCI members said: “Government should consider limiting duties on freight or, better yet, remove duties from freight altogether so in order to lower the cost of goods imported into Barbados and therefore reduce the high cost of consumer goods.”

Additionally, the business community is urging the new Mia Mottley-led administration to refrain from introducing any new taxes as it continues to work towards meeting targets under the International Monetary Fund (IMF) programme.

The global trend of rising inflation was reflected in domestic prices in 2021, with the retail price index at November being 4.6 per cent higher than at 2020 year-end.
This was driven in large measure by higher import prices, according to the Central Bank.

“Soaring international freight costs arising from disruptions in the global supply chain added to the hikes in energy and food prices caused by the revival of global economic activity. Domestic food prices were elevated mainly due to meats and vegetables,” it noted.

The Central Bank report added that “the domestic rise in prices was acutely felt in the price of gasoline, diesel and electricity, but continued discounting of clothing, footwear and furnishing and household equipment dampened the domestic inflationary pressures.”
Central Bank Governor Cleviston Haynes warned that on average consumer prices could remain elevated over the short-term, as he explained that providing a tax ease meant government had to look for new sources of revenue or slash expenditure in other areas.

However, Forte told Today’s BUSINESS that the same way Government has the ability to implement policies aimed at economic or employment growth it could put policies in place to address rising prices, even if temporarily.

“It cannot be good enough that these inflationary pressures are broad and we can do nothing,” said Forte, adding that good public finance management should not be confused with good economic management.

“The two are not one of the same but they are interrelated. You can manage public finances well and have very deleterious effects on the economy.

So the Mottley administration for example, has done a good job managing the public finances, but the economic performance, even before COVID, was not different from what it was before they came to office,” he explained.

“So the two things are not the same and therefore Government’s policy must take cognisance of its economic management as well as its public finances. And I am afraid that the Governor’s response to those questions were only in the frame of Government’s public finances,” said Forte.

He added: “We can’t do anything about what is happening outside, but we ought to do something about what we can control within Barbados’ borders, and that speaks to its indirect taxation regime, in this case, duties. There is also the question of the excise taxes or the fuel taxes or both . . .

“They also need to take cognisance of how these inflationary pressures impact economic activity and the economy ultimately. It is really about improving people’s well-being.

You want growth so that people can have jobs, have higher incomes and being able to take care of themselves and achieve some of their material aspirations. High inflation erodes that”.
marlonmadden@barbadostoday.bb