Association of bankers unhappy with asset tax
The newly-announced rise in the Bank Asset Tax does not seem to be sitting well with commercial banks, with President of the Barbados Bankers’ Association (BBA) David Noel calling for the tax to be shared “equitably across the entire financial sector”.
In Tuesday’s Financial Statement and Budgetary Proposals, Minister of Finance Chris Sinckler announced that with immediate effect, the tax on bank assets – which was originally intended to be a temporary measure when first introduced but was later extended – would increase from 0.2 per cent to 0.35
“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 in announcing a series of measures to help Government raise over $150 million per year in revenue.
Explaining his rationale for the increase in the Bank Asset Tax, Sinckler said the benefits to Barbadians which the Freundel Stuart administration anticipated when it removed the minimum interest rate had not been realized since the banks had not passed on any of the savings to their customers.
“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,” Sinckler said.
The Central Bank of Barbados removed the 2.5 minimum interest rate effective April 1,2015. Since then banks have been offering a record low interest rate of 0.5 per cent on deposits.
Ahead of a meeting with industry officials to discuss the matter, Noel, who recently took over leadership of the BBA, told Barbados TODAY that while commercial banks had a role to play in helping to grow the economy, Government ought to be engaged in more aggressive efforts to reduce its expenses and improve efficiency.
“We understand that we have a role to play in helping the county to get through this challenging economic period. We believe, however, that it is important that any increased tax burden be shared equitably across the entire financial sector,” Noel said.
“There have been reductions in lending rates available to customers over the past two years. We note however, that lending rates are not only impacted by savings rates but also by a variety of factors, including the levels of loan delinquency and credit risk.
“We also note that commercials banks continue to be a significant source of financing to the Government of Barbados. We would like to see more aggressive steps being taken by the Government in its ongoing efforts to reduce expenses and improve efficiency,” the banker stressed.
There has been support for the bankers’ position, with President of the Barbados Economic Society (BES) Jeremy Stephen saying Barbadians should brace for a backlash.
Reacting to the announcement by Sinckler, Stephen said he accepted that Government had to “once again go after excess liquidity within the banking sector”, but 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.