Brace for banking backlash – Stephen
Not satisfied that consumers of banking services in many “critical portfolios” have been benefiting from the removal last year of the minimum interest rate, Minister of Finance Chris Sinckler has announced a tax increase on bank assets with immediate effect.
The 0.15 per cent rise is expected to rake in more than $30 million per year for Government. However, President of the Barbados Economic Society (BES) Jeremy Stephen said the move could result in even lower interest rates for customers.
Following the removal of the 2.5 minimum interest rate by the Central Bank of Barbados with effect from April 1, 2015, banks have been offering a record low interest rate of 0.5 per cent on deposits.
Delivering the 2016 Financial Statement and Budgetary Proposals Tuesday afternoon, Sinckler described the Central Bank’s decision to liberalize the interest rate on savings as a “bold step”, explaining that the gains enjoyed by the banks and deposit-taking institutions were meant to ultimately benefit consumers.
“It was hoped that by freeing banks of this requirement, that as banking institutions received the benefits of a lesser cost burden at this end, it would have fed through for a faster and deeper benefit for consumers of banking services in many other critical portfolios,” Sinckler said as he outlined a number of revenue raising measures.
“To date, however, I must confess that like the average Barbadian, I am particularly unimpressed with the efforts made by the banks in this regard. As such, and as a little reminder to them of the need to share their new found and much appreciated benefits from the liberalization of the minimum savings rate, I have decided to use a little more concrete persuasion to nudge them along in the desired direction,” he said.
As such, Sinckler announced that the Bank Asset Tax would increase from 0.2 per cent to 0.35 per cent.
“The tax becomes effective immediately with the assessment for the assets starting from April 1, 2016. It is estimated that the 0.15 percentage point increase in the rate will yield additional revenue of $14.3 million. The expected intake from the tax for a full financial year is estimated to be $33.3 million using the 2015 asset base of the banking system,” Sinckler said.
However, in an immediate reaction to the Budget presentation, Stephen said while he understood the notion of Government “once again go after excess liquidity within the banking sector”, he was not necessarily pleased about it.
He said the intention was not necessarily to “dwindle” people’s savings and have lower interest rates “prevailing throughout the economy”, but to incentivize the banks and savers to invest more in Government papers or other assets, “or at least increase the flow of cash in the economy from consumption towards investment”.
“Banks are not in the business of absorbing taxes, so more than likely this will be passed on to consumers, and as such you can expect even further interest rate cuts, unless consumers decide to move their money out of that liquid banking system and into say, Government debt, which is really what I believe is the intent here,” the BES head said.
In 2014 Government estimated that it raked in about $2.5 million from commercial banks during the 2014 financial year from the tax on assets. Last year, credit unions were also required to pay the 0.2 per cent tax on their total assets after unsuccessfully fighting its planned imposition for almost a year.
The New Year’s wish of president of the Barbados Bankers’ Association Glyne Harrison last December was that Government would give commercial banks a tax break.
At the time Harrison told Barbados TODAY that banks were being good corporate citizens that paid their fair share of “huge” corporate taxes, deposit insurance and the tax on assets and they deserved an ease.