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Tax flop

by Shawn Cumberbatch

Opposition Leader Owen Arthur’s prescription for economic recovery, including reducing Value Add Tax back to its original 15 per cent rate, sounds more like a recipe for disaster.

Central Bank of Barbados Governor Dr. DeLisle Worrell said Government could not afford to simply reduce VAT and introduce measures to put money in people’s pockets because of the unwelcome negative fallout it would likely have on the island’s foreign exchange earnings and reserves.

And while saying he and the Central Bank were open to alternative policy options to turn things around, he insisted the policies had to be those which earned foreign dollars.

Worrell made his comments while responding to questions from the media today at the Central Bank, one day after he reported that the economy was stagnant, growing by a mere 0.2 per cent in the first nine months of 2012.

On Sunday at his Barbados Labour Party annual conference, Arthur proposed a 15-point plan he said a new administration led by him would introduce.

It included an ease in land tax, new tax rate for the middle class, the re-introduction of tax free allowances, rolling VAT back to its original rate and generally implementing “an immediate and comprehensive reversal” of the current administration’s policies, which he claimed had “raped the private sector and bankrupted almost every household in Barbados”.

But Worrell said today that Barbados was doing as well as it could “in the circumstances” and changing course in a way that negatively affected foreign exchange earnings was a no-no.

“Our fiscal strategies, the combination of spending and taxes is targeted to contain overall spending so that your import bill isn’t too high. So if you roll back the VAT then there is more spending in the economy, there is going to be more imports so you have to correct for that,” he said.

“So you would have to find some other means … by increasing some other tax or you are going to have to reduce government expenditures in some other way so that the overall spending doesn’t erode your foreign exchange.

“What we look at is at the end of the day is the total spending on imports higher than what is coming in. If it is then you have got to do some further tightening, that’s really the bottom line,” he added.

Worrell said the Central Bank wanted “any ideas that people have as to how we can increase our earnings of foreign exchange and the fact of the matter is that we are doing as well as we can under the circumstances, that the initiatives that will earn and save foreign exchange, which make sense in our circumstances, are the things that we have been focussing on”.

“If somebody can come with a policy to earn us more foreign exchange tomorrow we can have more spending tomorrow, but with the best will in the world and the most entrepreneurial spirits out there doing the things that they have to do we do not see a way to increase the foreign exchange through the things that we are competitive in, but we are not in a bad situation so we can afford to be patient,” he said.

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