In its 2017-2018 Budget, the Barbados government has opted for an internal solution to its debt crisis that is expect to cause widespread price increases, and effectively a devaluation of the dollar.
Faced with continuously falling international credit ratings that make borrowing from abroad more expensive, and local agencies that are either at their lending limit, or are unwilling to extend more credit to government, the administration last week passed a budget with $542 (Bar$1 = 50 cents US) in revenue-enhancing measures beginning July 01.
But among those procedures is a two per cent across the board tax on all foreign exchange transactions conducted by anyone on the island. This means that the levy will be placed on all activities involving buying United States or any other foreign currency from dealers, wire transfers, and credit card purchases.
Economists, business persons and non-government politicians have all denounced the foreign exchange transaction ‘commission’ as effectively a devaluation of the Barbados dollar.
Former prime minister and leading Caribbean economist, Owen Arthur, who is now an independent member of parliament, joined with Opposition Barbados Labour Party members in criticizing introduction of the tax
He said that the levy “is effectively changing the price at which Barbados uses domestic currency to pay for foreign currency and making it necessary for Barbadians to use more domestic currency for foreign exchange. So that is a devaluation.”
Another of the measures aimed at boosting revenue is an increase in a National Social Responsibility Levy (NSRL) on all imports from two per cent to 10 per cent.
The NSRL was introduced at two per cent last September and since then Barbadians have been complaining of noticeable increases in the cost of many goods and services.
Now the fear is that with the 400 per cent increase effective the beginning of July consumers will wilt under massive price increases.
Caribbean financial analysts, Price Waterhouse, now known as PWC stated, “the increase in the rate of the levy from two per cent to 10 per cent is significant and would result in an increase in the cost of living to the consumer and, by extension, to the rate of inflation. Since the levy is an indirect imposition it would be considered to be a regressive method of taxation, as it also places more burden on the most vulnerable in the society”.
Barbados imports more than 70 per cent of its goods with a similar figure for inputs to its services, so the combined effect of a de facto devaluation of the dollar and a massive increase in one of its sweeping import taxes would make it more expensive to purchase items abroad.
There may however be hope for government to soften these radical tax applications before the July 01 implementation date.
Prime Minister Freundel Stuart gave the first indication of a willingness to walk back the measures over the weekend when he said his government may adjust them before implementation based on public reaction.
He said that setting of the implementation date for July 01 was, “deliberate because we wanted to hear what people thought might be some of the challenges they were likely to face as a result of it.
“So we still have time to listen and to make any minor adjustments that need to be made to facilitate those persons who will be affected by the two per cent commission (tax).”