Leader of the Opposition, Godwin Friday, has described as “unconscionable” the one percentage point increase in value added tax (VAT), which comes into effect in St. Vincent and the Grenadines on May 1.
He said his New Democratic Party (NDP) believes that rather than squeezing taxpayers for more money, the government should find ways to put money into the hands of consumers and encourage spending.
The VAT rate will move from 15 to 16 per cent and is expected to generate a further EC$10 million in revenue for the government this year.
Prime Minister, Ralph Gonsalves, announced the increase in his budget address in January.
Gonsalves, who is also Minister of Finance, said the increase is necessary to help defray the cost of the response to damage and loss resulting from severe weather.
Speaking at a press conference on Wednesday, Friday noted that the increase comes one year after the government expanded the list of items that attract VAT.
In his 2016 Budget Address, Gonsalves said that rice, whole chicken and chicken parts, butter, brown sugar, lentils, pigeon peas, cooking oils, shortenings, salt, yeast and baking powder would become ‘vatable’ items.
But Friday objected to the increased VAT rate, saying, “It is unconscionable for the government to raise VAT to 16 per cent now, especially given the increase last year.”
He said the Vincentian economy is “in poor shape, with people and businesses struggling to make ends meet.
“Increasing taxes may help the government’s finances in the short term but will hurt people and, overall, will have a negative effect on the economy. You cannot tax your way to economic growth and prosperity. Rather, greater effort must be made to stimulate the economy, which [effort] will ultimately benefit the government through increased tax collection, and also improve the lives of our people,” Friday said.
He noted that the Vincentian economy has had several years of negative growth followed by “anaemic growth, meaning 1 or 2 per cent increase”.
Job creation has not been what is required to absorb Community College and university graduates hoping to enter the work force, Friday said and further noted that businesses that have been in existence for a long time are closing down.
“The economic situation in the country is dire. And if you are simply saying that government needs more money so, therefore, you have to pay up, then why does government always get the priority over the private sector, over ordinary people, over poor people in terms of the use of the resources in the country?”
Friday said economic theory has shown that if money is put back into the hands of the people and the private sector and they spend and the private sector expands, the economy grows.
“But the government of this country just seems to think that if they have a shortfall, they just go to the people and take some more.”
He said this is a time when things are particularly difficult and not the time to increase tax.
The people have to send a message to the government that they have to manage the finances of the country better, the opposition leader said.
“And we have told them this over and over again. They just go and simply say, ‘Listen, this is a priority, we must do it, because somebody has to pay it in the end.’”
Friday said he believes that the government has a role to play in the development of the country and has to spend to do certain things, encourage investment and provide certain incentives.
“But, at the same time, you have to do it in a fiscally responsible way and I don’t care if anybody says that you are being cautious and you are being whatever. The point is that you are doing something that is not proven to be the better way in which to govern.”
He said the nation is seeing the result now of what happens when a government simply allows itself to go down a road of not managing its affairs well
“All of us turn around and pay.”
Friday said that the NDP’s strategy is to grow the economy, adding that to do that, a climate must be created where businesses feel comfortable and encouraged to invest.
“That’s not the climate here in St. Vincent. There are people who have funds to invest here in this country — nationals — who are taking the money and investing it elsewhere in the region. Why is that happening?
“That is the problem we have here. The government competes for resources with the private sector, instead of supporting them and giving them a hand up.”
He said sometimes there are companies that are successful and “run afoul of the government politically and they are destroyed…
“This sends a chill in the business community to say this is not just a matter of business. You also have to play politics. If you do that, you stifle the entrepreneurship, you stifle investment and people get very wary of investing where they feel that, not just based on your business acumen or your business opportunities, you only succeed if you are also on the right side politically. That is where I think a big part of the problem is in this country,” the opposition leader said.