Any tax break to relieve individuals and businesses of rising costs requires a careful balancing act on the part of the government.
That assessment by Central Bank Governor Cleviston Hayness, who pointed out that while it is necessary that individuals and corporations are no longer burdened enough to cope with it, it is equally important that the government continue Collect income.
Haynes was answering questions from journalists on Wednesday as he presented his half year economic review and outlook.
An outcry over rising fuel prices since early last month prompted Prime Minister Mia Mottley, who is also Treasury Secretary, to announce that she would examine the possibility of putting in place price control mechanisms, including capping the value added tax (VAT) on fuel collected.
When asked what impact such a move could have on the government’s budgetary position, Haynes said there were several factors to consider.
“There are two things. One would be at what level you apply the cap. You need to realize that there is usually a certain assumption made about the price of fuel when forecasting. So, for example, if you tended to make $ 50 million from a given tax, assuming the price was $ 50 and the price climbed to $ 60, that would be considered a bit of a godsend in some ways become. So if you cap the $ 50 that you put into your model, it shouldn’t have much of an impact on total revenue, ”he explained.
“Now, with a weak revenue base, every extra dollar counts, but like I said, these things are about balance, and so you can potentially get the income you want, but at the same time take some relief.” To those affected by the fact are that prices are going up and we have no control over those international prices when they are going up.
“So it is really up to the Finance Minister to decide where that balance should be between providing aid and generating the revenue needed to fund education, health, transport and others,” he added.
There have also been increasing complaints about high water bills as a result of the Garbage and Sewage Tax (GSC), which individuals and some sector officials, particularly in agriculture, cited as an extreme burden on them at the time.
Introduced in 2018, the GSC was set at a rate of $ 1.50 per day for households and 50 percent of existing water bills for commercial customers and will be used to fund the Sanitation Services Authority and the Barbados Water Authority.
Haynes said that while the government will from time to time examine the possibility of granting relief, this will need to be weighed against the government’s ability to address any shortfalls.
“If, on the one hand, the government provides substantial relief, it will, on the other hand, presumably increase expenditure, because at the end of the day the plumbing department still has services to provide. So when it loses revenue from any source, the government has to step in, and that’s part of managing total debt, ”he said.
“It’s a balancing act because you want your sectors to develop and grow. So when these sectors are hit so badly that they are unable to perform, the government must deal with it. That is of course something for the finance minister. I cannot say how the Treasury Secretary will resolve this potential conflict, but from what I understand the plumbing department still seems to be generating enough revenue to fulfill its mandate. “
In his economic report, Haynes noted that the 12-month moving average inflation rate was estimated at 1.5 percent in May 2021.
He said food prices, especially vegetables, were responsible for an upward trend in inflation in the last half of 2020. However, this direction slowed down in the first half of this year.
The central bank governor noted, “The sharp drop in oil prices in 2020 has lowered electricity and transportation costs. However, in recent months, a surge in imported oil prices has started to reverse that trend, and prices are now returning to pre-COVID levels.