IN 1988, economist Owen Arthur observed: “The experience of Caribbean economies, in my view, is one in which by postponing dealing with fiscal problems as they arise, we translate problems which otherwise would be manageable into problems which are structural in nature and which eventually undermine the functioning and buoyancy of the economies.”
In 2008, the Barbados Government responded to a declining economy by imposing the highest amount of taxation ever in a budget. This resulted in a steeper fall in the economy in 2009 than was anticipated. The fall was equivalent to that experienced in 1982 and surpassed only by the out-turn in 1992.
Even though the Government diagnosed that it had an expenditure problem, it embarked on a programme of persistent taxation. The Government, therefore, postponed dealing with its expenditure problem and created major structural problems in the fiscal accounts. In the vein of Arthur, a manageable spending problem became a structural fiscal problem.
The misguided taxation policies have decimated the middle class/income groups. The decimation is recognised in these groups being characterised as “cash poor” and “asset rich”. Unfortunately, their assets have experienced some reduction in value: the main one being property.
It is not truly appreciated how these groups use the equity in their properties to access additional finance from the banks and other related institutions. What was initially regarded as a financial problem has morphed into a structural social issue. This is how.
In the not-too-distant past, the same income groups were being encouraged to invest. Incentives were put in place to invest in mutual funds, registered savings plans and other instruments. In 2012, there was the removal of allowances for individuals converting bonuses into bonds, debentures, stock of the Government of Barbados or mutual funds.
Soon after, the allowances of workers were taxed. This was all taking place in an environment of wages and salaries being frozen in the public sector. It is well known that when it comes to wage negotiations, the private sector takes the cue from the public sector. It is one of the few occasions it is happy to do so.
In the meantime, the Government was increasing the VAT rate on all goods and services. To make matters worse, property taxes were also increased and new taxes such as the solid waste tax were being introduced. The clearest evidence of the impact of taxation on the cost of living was in 2011, when prices in Barbados grew three times as fast as the rest of the region.
In the face of compelling evidence that Barbadians were hurting, the Government maintained its policy of excess taxation. The most surprising thing is its failure to acknowledge that the policy is largely responsible for the lack of economic recovery.
In its defiance of reasoning, the same Government surpassed its taxation record of 2008 in 2015. In the process, it stripped Barbadian taxpayers of their ability to claim allowances and deductions that encouraged them to invest in homes, medical examinations and other areas with few exceptions. The impact of these measures will be fully felt and understood when income tax filing starts next year.
The cumulative effect of fiscal mismanagement and delay is not just financial but psychological. There is no doubt that the current generation of Barbadians is less well off than those in the latter part of the 1980s and the 1990s. They are holding much more debt and their assets are relatively less valuable.
The social consequence is a society that is less happy. The bigger problem lies in the fact that our young people have less expectations than their parents. Access to healthcare is going to come at a much higher price. Add to this that university education is in the same boat. Inheriting land may be become the rule rather than the option.
It is fascinating how easily an incompetent government can reverse the economic fortunes of a country. The major concern is that such a turnaround is typically accompanied by social decay. Once the two types of decay persist, institutional decay sets in. The country’s major institutions become victims of not just decay but delay.
However, the thing that truly breaks the country’s spirit is lack of confidence. A lack of confidence in its governance; its institutions and ultimately its future. The latter may seem hard to comprehend if you were around in the good days. But for the young, it is easy to project what you know of the present.
Dr Clyde Mascoll is an economist and Opposition Barbados Labour Party adviser on the economy. Email: mascoll_clyde@hotmail.com