Sunday, April 14, 2024

What went wrong?

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IN ORDER TO PUT the cruelty of the recent 2013 Budget in perspective, it is important to revisit the 2008 Budget delivered by David Thompson and entitled Responsive And Responsible.
He identified the “current major issues” as the following: (1) projected slow rate of growth in tradable sectors, particularly tourism; (2) vulnerability in food and energy with resulting pressure on growth of the economy and impact of inflation on the poor; (3) high national debt and already high fiscal deficit and (4) pent-up unsatisfied demand for housing by lower and lower middle income families.
On every one of the issues outlined above, the current Government has failed, even the last which was once being trumpeted as a possible success. Furthermore, the financing of university education was not a major issue. So what went wrong from a policy perspective?
The Barbados economy has been suffocated by more and more taxation, which resulted in a smaller and smaller economy over the last five years. Apart from very little growth in the local financial sector, the only other sector that grew was the Government sector and the growth was significant. The Government simply lost its way!
As stated, there was some vulnerability in food and energy prices. But the Government responded by increasing the VAT rate, excise taxes and utility rates, which served to push up consumer prices to Barbadians, including the poor. Having failed to protect the poor, the Government delivered the ultimate piece of economic injustice to them by cutting the reverse tax credit in half.
The irony of this act is best recognized in the pretended ignorance in the 2008 Budget. Thompson said: “Additionally, I note that last year [2007] the reverse tax credit was proposed to be increased from $800 to $1100 for this Income Year and effective Income Year 2009 it would be further increased to $1 300.”
Here comes the pretence. Notwithstanding the fiscal circumstances, he said, “. . . as a result of the increase in the cost of living, I am going to increase the grant to persons earning below $15 000 per annum to $1 300 for this year.” The benefit was brought forward.
In the post-2008 period, fuelled mainly by taxation policy the cost of living went up significantly, especially in 2011, accompanied by rising unemployment among the poor. The cruel irony is that the Government spent less on education, health and social development as a proportion of total expenditure, while suggesting that the society is more important than the economy.  The poor have now become the sacrificial lamb, stripped of the reverse tax credit and university education.  
This brings me to the third issue identified above. Surprisingly to many, the national debt increased more in the five-year period since 2008 than in the period 1994 to 2007. There is no evidence of the increased debt in the country’s infrastructure and certainly not in the country’s economic performance. What a pity!
Unfortunately, the national debt is set to increase most dramatically this year. What a curse!
The saddest failure of all has been the fiscal deficit, which was said to be “an already high fiscal deficit” in 2008. However, it is the structure of the fiscal deficit, not just its size, that has been most perplexing. For the first time, a Barbados Government has been unable to meet its current obligations without having to borrow for a sustained period, now over five years. This is the height of irresponsible responsiveness that contradicts the title of the 2008 Budget.
And the apologists for the Government must stop now and accept that the recent Budget is yet another irresponsible approach to the country’s fiscal management. Pre-2008, the pursuit of economic growth provided the environment for growth in Government revenue, which covered current expenditure.
However, as far back as the 2003 Budget reply, this writer spent a considerable amount of time on the growth of Government subsidies and transfers to statutory boards. At the time, there was no problem with sustained deficits on the current account. Thompson confirmed this in the 2008 Budget when he observed “on the fiscal accounts, growth in Government expenditure is projected to be in line with current trends”.
It should be obvious to all that something went out of line in the post-2008 period. It is expenditure.
Things are now so badly out of line that the poor have been asked to sacrifice the most.
What a difference a bad government can make!
• Clyde Mascoll is an economist and Opposition Barbados Labour Party spokesman on the economy. Email clydemascoll@gmail.com.

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