IN SIR WINSTON CHURCHILL’S History of the Second World War he wrote that the Japanese attack on Pearl Harbor on December 7, 1941, which led to the immediate entry of the United States (US) into the war, meant that victory for the allies was now assured. With the US now fully committed on the side of Britain, he wrote, he felt “the greatest joy” and “went to bed and slept the sleep of the saved and thankful”.
I suspect the top ministers of the Doolittle administration are feeling the same emotions now that the price of oil has entered the economic “war” firmly on our side. It is the only thing which has saved the administration, and remains the one marker of hope that our economic slide into banana republic oblivion has been halted.
How we manage to reclaim that slippery slope to economic growth is now the task before us as a nation. But I fear that the “saved and thankful” of the present administration will not agree that the same international economic forces which they have always claimed were responsible for the poor stewardship of the economy should now be given credit for the glimmer of economic hope that now resides in our hearts.
The fall in oil prices has even caused the British central bank governor, Mark Carney, to warn people not to get too cosy about the inflation holiday the country is having. Instead of the expected two per cent rise, Britain’s inflation rate has come in at less than one per cent (minus 0.1 per cent) for the first time in more than half a century, as the drop in food and energy prices reduced the cost of living.
Now, as we all know, too much of a good thing can be bad for you, and little or no inflation can quickly become deflation when it moves into minus territory. Deflation means businesses are earning less profits and consumers may also be buying less or the same amounts as before, leading to little growth in demand. This causes an economy to slow down.
That’s why Britain’s Chancellor of the Exchequer George Osborne, while describing the annual fall in consumer prices as “good news for family budgets”, was quick to add it should not be mistaken for “damaging deflation”. He added that “we have to remain vigilant to deflationary risks and our system is well equipped to deal with them should they arise”.
You think it’s just about paying less at the pump or in our electricity bills? No, my friends, the lower oil prices are the thing that is driving our resurgence in tourism (along with the good job done by our tourism authorities, and this is not meant to reduce their hard work in any way).
Lower oil prices in Britain helped drive down the cost of travel as air and sea fares made the biggest downward contribution to the annual rate of consumer prices index. Result: thousands of members of the Barmy Army travelling to the Caribbean, including Barbados for the England versus West Indies Test cricket matches recently.
All of this suggests to me an immense pent-up demand in the world’s economies, including Barbados’. Once prices come down to approach levels at which people are able to not only survive but to have a little room to move, they start to reward themselves for coming through the long inhospitable night. Travel is one such reward. That is why our tourism is up four per cent this year, at least, in part.
So you might think the ministers sleeping “the sleep of the saved and thankful” in our fair country would take to heart the lesson learned” give consumers and businesses a chance to thrive and see how fast the economy recovers? There never was any need for the so-called fiscal adjustment programme, and the fact that it has produced the same result for the economy suggests that when people are overtaxed they just won’t pay any more taxes. If you check the Central Bank’s most recent tax revenue numbers you will see that, for the most part, the increase in revenue has come from a massive increase in the amount of personal income taxes paid into the Tresury, which cannot be explained only by the “consolidation tax” imposed on higher end income earners, as well as increases in revenue from excise taxes and import duties.
Since Barbados did not lower its fuel prices until six months after they started to fall around the globe, the excise taxes would not reflect the true picture as they are derived mainly from consumers paying for fuel. But we can expect this revenue stream to fall this year unless the Government goes in and jacks them up again.
The $35 million from the Municipal Solid Waste Tax only replaced income that fell from other sources. Its removal will therefore not be missed by the tax man overall and it will give home and business property owners a relief.
If only the saved and thankful could now try to apply that philosophy to the rest of the budget and free up the economy, we would see remarkable things start to happen.