As senators debated and passed the supplementary budget in the upper chamber yesterday, Minister of Economic Affairs Senator Michael Halkitis said those calling for value-added tax (VAT) breaks for the poor via zero-rated items, are also calling for tax breaks for the rich.
The Value Added Tax Amendment Bill, 2021 was passed in a compendium of bills associated with the Davis administration’s new fiscal mandate since coming to power in September.
The VAT amendments have been the most discussed and impactful of the legislation tabled, as the opposition argued that the reduction of VAT from 12 to ten percent and the removal of zero ratings on breadbasket items and certain medications would negatively impact the most vulnerable in the country.
“If we try to give relief to lower income households by making an item VAT free, you are giving that same relief to high income households and businesses that do not need it and in some cases they come right out and tell you, they do not want the relief. Our belief is the best policy is to keep a flat low rate and provide direct assistance,” Halkitis said, noting it is an emotional issue for many.
“I say this over and over, it’s a sensitive topic, it’s a topic that we agonized over when we first did it and then we said if we go to ten we have to go back to minimal exemptions. But it’s sensitive because people consume these things and you don’t want to be in a position where you are advocating that those people need help from social services, so we balance all of those concerns with what is best practice,” he continued.
The Minnis administration increased VAT to 12 percent from 7.5 percent in 2018, at the same time that it implemented a zero-rated list for breadbasket and other items.
At the time, then Minister of Finance Peter Turnquest said the hike was essential to reach the Minnis administration’s fiscal target of a balanced budget.
Halkitis said the Davis administration has a different philosophy.
“Everything that we currently pay 12 percent VAT on, we will now pay ten percent after the passage of these bills. Now concerns have been raised about the elimination of the zero rating on breadbasket items and a limited number of other items that were zero rated when the amendments were made in 2018. Those items were made VAT free at the same time that VAT was raised from 7.5 percent to 12 percent in the 2018 budget. I just want to say, to be clear, in order to have those items in the breadbasket and a few other items as zero rated, the administration at the time increased the VAT on everything else – goods and services – from 7.5 percent to 12 percent. So in order to make grits, rice, flour, tomato paste, powdered detergent, mustard, mayonnaise, milk, cooking oil, corned beef, canned fish, cheese, butter, bread, baby formula, baby food and baby cereal VAT free,” he said.
“In order to take that VAT off of those, VAT had to be increased for example in the food store – chicken, pork chop, turkey wings, ribs, lamb chops, ham, salt beef, peas, beans, sausage, egg, hot dogs, cabbage, Irish potatoes, sweet potatoes, carrots, broccoli, mixed vegetable, corn, lettuce, celery, macaroni, spaghetti, noodles, sugar, corn flakes, oatmeal, tea bags, coffee, Milo, sodas, juice, Gatorade, ice cream, cookies, chips, lime juice, foil paper, sandwich bags, garbage bags, joy, Ajax, et cetera. My point is that when you try to bring relief by exempting certain things and then you raise rates on other things. Essentially people are paying more for those things and even though they may get a savings on making those things VAT free, inevitably they pay more. If there was any good news in that whole downgrade saga it is that it is recognized that our economy is poised for more growth and that should relieve more pressure on the government.”
The reduction is a fulfillment of a commitment made in the Progressive Liberal Party’s economic plan, published in March and subsequently included in its Blueprint for Change ahead of the September 16 general election.