President of the BES, Shane Lowe addressing members of the business community yesterday.
Numerous positives, some drawbacks
President of the Barbados Economic Society (BES), Shane Lowe says in examining the Budget that was delivered earlier this week, in spite of the numerous positives, one has to ask ‘to what extent are the measures likely to reduce economic growth’?
He raised the issue yesterday morning as he spoke during the Barbados Chamber of Commerce and Industry’s Post Budget Breakfast Meeting at the Hilton Hotel, which was held in conjunction with PwC. While noting many of the positives of the budgetary proposals, Lowe said the potential negative impact on economic growth and the upper middle class income earners, is one of the drawbacks that should not be ignored. He made the point while referring to the introduction of the new income tax rate of 40 per cent, to be charged on income exceeding $75 000 and the health levy of one per cent that is to be paid through the National Insurance Scheme.
He added, “While the upper-middle income and higher income in terms of percentage of the population might be a smaller portion, they likely spend more than the lower income person, and of course they hire those persons as well. They might hire a gardener, or someone to do housekeeping; so to what extent does taking money out of their pockets hurt the same persons you’ve been trying to protect at the same time? And of course for the competitiveness issues in tourism, to what extent does that also have a negative impact on tourists?”
The BES president spoke to this as he said it is difficult to say what the impact would be of those measures, and we will have to wait and see what the outcomes will be. His comments came as he described the Budget as a “very important one”, as it seeks to close the funding gap and mitigate any impacts on economic growth which had already been negative up the first three months of this year.
“What the Budget did do is that it did reduce the need for new financing, so the Minister of Finance, the Prime Minister did note that the deficit should come down to about $140 million and that is before debt restructuring, she said including debt restructuring should get her to virtually a balanced budget with no new financing needs. I think that is particularly important, because once you’ve decided that you’re going to default on external debt and announce your intentions to restructure domestic debt, it is difficult to attract new financing if you are not paying people as scheduled. And what it does is also stabilise the very high debt levels in the interim,” he added. The economist added that another positive of the Budget is that it has sought to widen the tax net so that from a tax perspective, Government is “not attacking the same persons all the time”. As such, he explained that Government has shifted the burden, in relative terms, from lower income to the middle class and higher income persons and he said the abolition of the NSRL and the five per cent increase in salaries for public servants, should help persons on the lower end.
“You [also] have the new health levy which everyone will pay, but it will disproportionately benefit those at the lower income levels because those at the higher income levels tend to go to the private health care facilities [and] they have health insurance, while the lower income levels would tend to go to the hospital and polyclinics,” he added.
Meanwhile, Lowe lauded Government for introducing new funding models for some of the State-owned Entreprises. He said effectively taking the Barbados Tourism Marketing Inc., the Barbados Tourism Product Authority, the Sanitation Service Authority and to some extent the Queen Elizabeth Hospital off the Consolidated Fund should reduce Government expenditure greatly. He made the point while noting that improving infrastructure spending is also a step in the right direction. According to him, capital expenditure will now account for 3.9 per cent of Gross Domestic Product (GDP).
“Last year part of the massive improvement in the fiscal deficit was a reduction in spending on capital expenditure which was about 1.7 per cent of GDP; contrast that to let’s say around 2004 when we were spending about 3.4 per cent of GDP, you see that we have cut our budget virtually in half on those things, and those things are important because you need to maintain the infrastructure to be a competitive tourism jurisdiction,” he stated. (JRT)