Rich man, poor man

Finance Minister Colm Imbert’s blueprint for a brighter future contained measures that will adversely affect some consumers while providing relief to others.

Unlike last year’s presentation, there was a concerted effort to tax the wealthier in our society; to have those who have gained more shoulder more.

Measures in relation to the rich included a new 30 percent tax rate for people earning more than $1 million a year. The measure will also apply to high-income businesses. At the same time, foreign yacht repair will be VAT exempt, with effect from the first quarter of 2017.

Measures benefitting the poor include a novel 25 per cent rebate on electricity charges for people whose monthly electricity bill is $300 or lower. This measure will take effect from December 1, and will benefit about 120,000 households.

It will be interesting to see whether consumer habits may be affected. Some may be tempted to reduce consumption in order to access this rebate. If this is the effect, then this will reduce our fuel dependence, in a world that is moving forward with implementing the Paris Agreement.

But the poor, as well as the ordinary, will also have to shoulder more when it comes to consumption.

Diesel has now moved from $1.98 per litre to $2.30 per litre.

We imagine the eventual aim is for the price to be $3 per litre, though the minister was silent on the timeline in relation to this.

It remains open for the Government to conduct another midyear review exercise.

All consumers, rich and poor, will be affected by increased import duties for booze and tobacco.

In effect, these duties act as sin taxes. However, they also serve a pragmatic cause, namely reducing the public sector health bill.

Yet, this is one area notably missing from the three-hour long presentation. While the minister cannot possibly address every single matter under the sun, the problems bedevilling the procurement systems within Regional Health Authorities demand a clear plan of action. To be fair, mention was made of failing State enterprises.

“The Regional Health Authorities also need to examine their systems, costs and efficiency to avoid the need to have recourse to Government bailouts and short-term loans,” Imbert said.

There will be disappointment that the online tax will go forward since most consumers conduct their shopping online. Yet, the silver lining of this measure – as well as the sin taxes – is that local manufacturing could be stimulated. But this assumes this sector is in a position to capitalise on the fallout that will come.

Still, care must be taken not to adopt protectionist measures in a world where global economies are inter-related.

Yet again, oil revenue was relatively minor in the bigger scheme of things and gas remains the driving force of the economy. At the same time, we question the oil and gas prices on which the Budget is pegged. The minister opted for an oil price of US$48 per barrel and a gas price of US$2.25 per mmbtu. The midyear review’s oil price was US$35 per barrel and the gas price was US$2 per mmbtu.

Though the Budget’s prices remain lower than estimates by international agencies, there is a risk of being lulled into complacency.

And it cannot be denied that the use of higher pegs potentially removes the requirement of the State depositing money in the Heritage and Stabilisation Fund.

In fact, the minister hinted a further withdrawal is coming.

Overall, the Budget, while balanced, did not present much that was novel, except the tax on the rich which is a good move.