Economists on Sunday shared mixed views on how Government should tackle rising fuel prices and the high cost of living.
Economist Jeremy Stephen proposed a reduction of the Value Added Tax (VAT) on fuel but his counterparts Professor Justin Robinson and Canada-based Barbadian economist Carlos Forte challenged this view.
Speaking at the James Tudor Institute of Politics Discussion Series that analysed Tackling the Cost of Living Crisis on Sunday evening, Stephen suggested that a reduction of VAT, that is easy to police on certain headline items like fuel, was the right move.
“There is only one importer and two distributers of fuel and then there is a few independent ways that aviation fuel get through and then there is Light and Power, so easy to police. So, I argue that VAT [reduction] as a policy response could be done on the fuel end,” he said.
But Forte recommended that the VAT, which he described as Barbados’ revenue anchor generating somewhere between $600 and $800 million in revenue per year, should not be tinkered with for temporary policy responses.
Forte expressed the view that more direct policy interventions were needed and proposed that in case of surging oil prices, Government should take a look at the high import duties on fuel.
“Where we accept most of the price increases, if not all are imported, but they are compounded by a high duty regime. And therefore, as a temporary measure those duties can be reduced so that those price increases would certainly not be compounded at worse, and certainly at a minimum to minimize the landed price of those products by way of reducing the duties.”
Professor Robinson noted that the prices being paid by consumers reflected the cost of the landed goods, plus local taxes and the mark up applied by merchants and therefore government has the control on import duties, levies and the VAT.
He said to help cushion the financial strain on Barbadians, government could take the extra revenue it has generated and redistribute it in the form of subsidies that target the most vulnerable.
“If we are looking at a government response it would be surprising, shocking, incredulous if the government was not in fact earning more revenue than budgeted. I think we want to take that as a given, so what can the government do? . . . Maybe the government had a spending programme that was not predicated on this crisis that has arisen, but this crisis has arisen and if we are going to have Barbadians not pushed over the edge and we really risk people’s lives being seriously affected, then there is also the flexibility to change your spending priorities. I think these are all within the realm of possibility if we look at the intervention of the state,” Professor Robinson said.
President of the Democratic Labour Party Dr Ronnie Yearwood argued that Government was earning additional revenue and was therefore duty bound to respond to the needs of citizens.
“And how does government respond to its citizens when they are saying, ‘look we are hurting, we know you have some extra cash, can you please help us out?’. It is up to government to say what are the priorities, what are their policy responses . . . and there has to be flexibility.
“It is easy to say this is a global crisis, however, the responsibility from the political side of government is that you have to take care of your citizens, you have to respond to their needs, you can’t be a fair-weather government. You can’t say oh there is a crisis so I can’t do anything. that does not sell and cannot sell because the role of the government is to respond, you have to create opportunities,” Dr. Yearwood said. (KC)