Central Bank Governor defends new levies
Governor of the Central Bank of Barbados Dr DeLisle Worrell is defending Government’s decision to impose taxes on the population as a revenue raising measure, saying it was necessary to help close the deficit and maintain adequate levels of foreign exchange reserves.
Speaking last night on a television programme on the economy organized by the Central Bank, Worrell said it was necessary to raise taxes in order to control the amount of money leaving Barbados.
“In the short run, what you have got to do is you have got to reduce the imports. To reduce the imports you have got to reduce the spending power, the ability of people to import, and the tool that you use to do that is the fiscal. If you put more taxes then people have less disposable income,” Worrell said during the discussion on how to get the economy firing.
At the same time the economist did not ignore the need for Government to reduce spending, saying, coupled with increased taxes, it would help preserve foreign exchange reserves.
“Both of them have the effect of reducing the total spending power in the economy and that is what you have to do in the short run in order to get back into balance because we have got to get back into balance to have the secure foundation to go forward in the medium term,” he explained.
In his recent Financial Statement and Budgetary Proposals, Minister of Finance Chris Sinckler announced a new National Social Responsibility Levy of two per cent on all imported goods, as well as those manufactured locally for local consumption. The tourism, manufacturing and agricultural sectors are exempt.
Sinckler also announced an increase in the tax on bank assets form 0.2 per cent to 0.35 per cent, which analysts said could also have an impact on the population.
In 2014 Worrell had stated that the VAT system was “a mess”, unnecessary and unsuitable for Barbados and should be scrapped and replaced with “a simple sales tax”.
Last night, however, Government’s top economic advisor said if new taxes were not introduced, Government would likely have to decide whether it could afford some social services, an alternative, he said, Barbadians would not appreciate.
“I think that there is a consensus in this society that we don’t want any more taxes. If we don’t want any more taxes then we must face the issue of a realistic strategy for reducing expenditure and I think that brings the conversation to a place that Barbadians do not wish to address and we must address it, and that is the question of means testing,” Worrell insisted.
He cited Australia as one example among several countries that were richer than Barbados but did not offer free tertiary education.
“If they can’t afford universal freeness without means testing how come we can afford it?” he asked.
Asked what considerations were being given to areas identified for growth in light of the new levy which took effect on September 1, Worrell said, “you can’t have it both ways”.
He explained that the taxation policy was “a medium-term process” to protect the reserves, while ensuring “there is not a big hit” on any particular section of the society.
Senior lecturer at the Cave Hill Campus of the University of the West Indies professor Winston Moore disagreed with the idea of means testing for education, stating it went beyond any individual and was necessary to eradicate social ills in the future.
However, Moore admitted the fiscal deficit needed to be addressed, adding that until it was dealt with foreign investors would continue to be uncomfortable about investing in Barbados.
“We can have best infrastructure and policy but if they are uncertain about where we are going as a country then they are not going to invest,” Moore warned, while advising the Freundel Stuart administration curb spending on wages and salaries, as well as transfers.