UWI economist flags regressive budget measures

Professor of Economics and Deputy Principal of the University of the West Indies at Cave Hill Campus, Winston Moore, has flagged several measures that he said are regressive in the 2026 Budget.

But Professor Moore and another UWI economist have independently singled out the Barbados Republic Child Wealth Fund as a particularly progressive policy.

He focused his analysis on the Budget’s consequences for the redistribution of wealth for various income groups, a day after it passed the House of Assembly. Prof Moore suggested that while his fellow economists have looked at the fiscal implications, very little attention has been placed on the potential distributional impact.

The UWI deputy principal told Barbados TODAY: “A policy would be termed progressive if it is aimed at reducing inequality, promoting social justice, and strengthening public services. A cost-of-living cash credit of $100 per month for example, is more likely to impact on low-income pensioners rather than those retirees in the higher income brackets and would therefore be considered progressive. A policy would be termed regressive if it does the converse.”

He continued: “There are two aspects of the policy changes that could be considered regressive. First, the income tax cuts, one percentage point reductions across both tax brackets, are mildly regressive in incidence relative to the rest of the package. The tax cuts are likely to result in higher absolute savings to those at the upper end of the $25 000-$75 000 and $75 000-plus brackets.

“This is defensible as a middle-class stabilisation measure, but it dilutes the progressivity of the overall package. Second, the energy subsidies are not means-tested and benefit commercial and residential consumers proportionately to consumption. The largest energy consumers receive the largest absolute subsidy, a structural limitation of price-based instruments.”

But Prof  Moore suggested the Barbados Republic Child Wealth Fund was the most forward-looking distributive instrument in the budget.

He reasoned that by endowing every Barbadian child born since November 30 2021, with $5 000 in ring-fenced investments, it directly addresses intergenerational inequality and builds capital stock at the base of the income distribution.

He noted that this is a policy rationale supported by research on these ‘baby bonds’.

“Its long-run distributional impact will, however, depend critically on investment governance and the returns earned by the fund. An independently administered entity with diversified investment in bonds, equities, and funds, as proposed, follows international best practice [for example, the Norwegian Government Pension Fund].”

The estimated initial capitalisation of $52.1m (covering children born from November 2021 to March 2026) will grow substantially as a statutory annual commitment for each birth cohort, said the economics professor.

The Reverse Tax Credit (increased to $1 700 for incomes up to $25 000, extended to $35 000) and the Compensatory Income Credit expansion (now covering incomes to $50 000) function as effective negative income taxes.

Professor Moore suggested that these instruments improve after-tax income for lower and lower-middle income households without creating labour market distortions.

“Similarly, 30 per cent increase in welfare rates and the $100 per month Cost-of-Living Cash Credit for pensioners, welfare recipients, the elderly non-pensioner population, and persons with disabilities, represent targeted, administratively simple transfers that address acute vulnerability.”

For UWI economics lecturer Dr Ankie Scott-Joseph, the Republic Child Wealth Fund stands out as an insightful measure.

“I support the principle of birth endowments. Giving children a financial head start and building long-term wealth from the ground up is good policy,” Dr Scott-Joseph told Barbados TODAY.

But she expressed concern about the timing and the legal structure.

“There is currently no fiscal room if oil hits $150 to $200 per barrel. In that same package, he is creating a statutory payment that cannot be reversed. If revenues fall sharply, government still has to pay this, which means cutting something else. What gets cut? The answer is unknown.

“The harder question is whether $52.1m has a more lasting impact as a lump-sum endowment or as sustained investment in early childhood nutrition, healthcare, and education. Both approaches aim to reduce intergenerational poverty, but they do not yield the same returns, and that comparison should be part of the public conversation.”

Dr Scott-Joseph also had reservations about the effectiveness of the electricity subsidy, low-income tax relief, the VAT caps extension, freight cost cushion and pensioner support.

On the freight cost cushion, she noted the government has capped the shipping cost used to calculate duty and VAT at US$3 000 for 20-ft containers and US$6 000 for 40-ft containers.

“The problem is the cap is a fixed number. If a 20-ft container costs US$4 500 to ship, the importer still pays duty and VAT on that extra $1 500 above the cap. So when freight gets really expensive, which is entirely possible given how unstable global shipping is right now, the relief stops working. Households end up paying higher prices at the shop anyway. It handles moderate increases. It does not handle a serious freight spike.”

In the case of the low-income tax relief or reverse tax credit, the economist said: “What worries me is that a reverse tax credit only reaches you if you file a tax return. Many low-income workers, especially people doing informal work, do not file.

“The people this is designed to help most are the ones most likely to miss it entirely unless there is a serious public education and filing assistance campaign. The $1 700 credit works out to about $142 a month, which is real money, but only if you actually receive it.

“Moreover, because of the structure, someone earning $25 001 qualifies for $750 less than someone earning $24 999. That creates a situation where earning slightly more actually leaves you worse off after tax relief, and that is a design flaw. The rate cut benefits middle earners in absolute dollar terms, while the lowest earners get proportionally more generous relief through the credits, assuming they can access them.”

The increase in the tax-free allowance for pensioners to $75 000, only helps those whose pension income was already being taxed: “Pensioners at the bottom of the income scale were not paying tax on their pensions to begin with, so this part of the measure passes them by entirely.”

From a fiscal standpoint, the structure of the electricity subsidy is straightforward, said Dr Scott-Joseph: “‘Government has a defined amount it is willing to spend and a defined window. When that window closes in July, the measure ends. There is no graduated phase-out and no trigger for extension. For households that adjusted their budgets around this cushion, the sudden removal is a real financial shock that government has not publicly planned for.”

The economics lecturer described as “immediate and visible”  the tax cuts on petrol and diesel by ten cents per litre from April 1, which expire in June, along with the other time-limited cash measures.

“But,’” the economist said, the tax is only “one component of the final pump price. Crude oil costs, refining margins, and freight all feed into what you pay, and a $20 move in crude wipes out a ten-cent excise cut without anyone noticing”.

“The only issue is who benefits most. This is universal relief, and everybody buying fuel gets it, but households with multiple vehicles and longer commutes capture far more in absolute savings than low-income households that rely on public transport or cannot afford to drive at all.”

The Budget and the distribution of wealth – What to know   

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