Lorde: Don’t place asset tax on credit unions
University of the West Indies economist Dr Troy Lorde is dismissing calls by commercial banks for the recently hiked Bank Asset Tax to be applied to other financial institutions, particularly credit unions.
He argued there would be nothing to be gained by such a move, explaining this would put credit union at a disadvantage.
“Credit unions don’t bank their own money; credit unions have to bank with banks. So they would be taxed twice if there was a tax, let’s say on credit unions assets as has happened, because when we deposit with credit unions they have to take that money and deposit it in a commercial bank. So if commercial banks are taxed . . . and then go ahead and tax the assets of credit unions, they are going to be taxed twice,” Lorde reasoned.
Last year, credit unions were required to pay the 0.2 per cent tax on their total assets.
The Bank Asset Tax, which was first introduced in 2013 at 0.2 per cent was increased to 0.35 per cent in this year’s Financial Statement and Budgetary Proposals by Minister of Finance Chris Sinckler, who made it clear that he was “particularly unimpressed” that banks had not used the Central Bank’s liberalization of the minimum savings rate (MSR) in March 2015 to deliver more benefits and cost effective services to consumers.
“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 MSR, I have decided to use a little more concrete persuasion to nudge them along in the desired direction,” Sinckler said in announcing the tax increase.
Commercial banks have argued that the measure will affect their bottom line and they have urged Government to take more aggressive steps to reduce its expenses and improve efficiency.
But like the minister, Lorde told Barbados TODAY the evidence showed that banks had not really passed on the saving to consumers even though they had fully embraced the Central Bank’s decision to open the MSRs.
“Even though the mortgage rates have come down because that is good for a person who can actually afford a mortgage, those things that persons would normally have to use in terms of the facilities, you haven’t really seen it.
“Car loans are still expensive – some going north of 12 per cent, credit card interest rates have always been over 20 per cent, so there really has not been any movement there. Even rates for basic loans like things for home improvement, those rates are still north of ten per cent. That’s very high. The other things that banks do, they charge a lot of fees,” the economist said.
Overall, the senior lecturer in Economics at the Cave Hill Campus is doubtful that the increased tax will work, saying it yielded little from the commercial banking sector the first time around.
However, Sinckler has 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 the financial year is estimated to be $33.3 million.