Economist warns of more bitter medicine
The Freundel Stuart administration is in danger of not meeting its targets under the 19-month fiscal adjustment programme, which ends in March.
And based on the latest report issued by Central Bank Governor Dr Delisle Worrell, economist Ryan Straughn today warned that this could only mean one of two things – more taxes, or an extension of the fiscal measures, which included a public sector-wide retrenchment of 3,000 workers.
In his report issued yesterday, the Governor warned that “further revenue enhancement and expenditure adjustment equivalent to 2.0 per cent of GDP will be required in the second half of the fiscal year to bring us to the target deficit of 6.6 per cent of GDP”.
However, Straughn, who is the immediate past president of the Barbados Economic Society (BES), told Barbados TODAY the statement raises questions as to where those revenue and expenditure adjustments would be made.
He said he could only deduce from the Government’s statement that an increase in taxes could be coming.
“I really don’t understand what these revenue enhancing measures are likely to be other than new taxes and this is why there should be a press conference,” Straughn said, knocking the Governor’s decision not to hold a Press briefing as was customary up until the end of the first quarter.
“I think [the revenue measures] are something that we must be mindful of, and I am not sure what they actually refer to other than the prospect of some new taxation coming fairly soon,” the former Central Bank employee said.
“Even if there is meant to be further revenue enhancement those things would have to be introduced already . . . There is further adjustment needed to achieve this so-called target of $174 million and no explanation,” Straughn lamented.
In relation to the net public sector debt which, as at the end of September reached 75 per cent of GDP, up from 67 per cent at the end of last year, Straughn said “those debt numbers should not have increased in such a large degree in nine months”.
“So that is an indication that really and truly the programme articulated isn’t working to the degree that it should be. If your debt is increasing as a result of either increased spending or less revenues then it means that we are not responding specifically to what is a fairly dynamic situation and I think we are in real danger of actually not achieving anything close to the targets that were identified in August of last year,” he said.
“The prospect of the adjustment programme being extended is real when I look at these numbers that I am seeing here [in the report]. So you could have issues of the extension of the Consolidation Tax, which was supposed to come off at the end of March, and all the other things that were meant to be part of this 19-month programme may very well stay in place, simply because we are not making the adjustment on the expenditure side.”
Based on the official numbers from the Central Bank, the economist also said: “I can only reasonably expect that there will be little or no reversal of these policies post 2015, simply because we have not made the adjustment on the expenditure side,” he said.
However, Straughn cautioned the Government that unless taxes were lowered or some removed, it would not achieve the kind of economic growth that was being forecasted.
“Given that we had a full year of the Consolidation Tax, we have had an introduction of the Municipal Solid Waste Tax, we had the tax on bank assets, we also had the Reverse Tax Credit and the VAT increased two to three years prior to that, the cumulative impact of all of that has resulted in a very depressed economy. So unless some of those things are removed, and I don’t see any reference to that, [the projected growth will not be achieved].
However, Straughn explained, “if those things are removed, then you can start to see some growth coming back to the economy.”
When contacted, the current president of the BES Jeremy Stephen said the association did not have a comment to make on the report at this time.