He giveth and he taketh; we hope that it balances out.
The man in the street has to do some budgeting himself, so as to deal with the situation in the coming months.
All Barbadians knew that something had to be done.
Suppose you are earning $100 per month. The Government says that it will try to maintain your job. It will look after people as it said in its 2008 manifesto. Therefore, you are enjoying no bus fares for children and so on.
Just suppose you spend the $100 per month (you are living from pay cheque to pay cheque). Expenses from December are now $105.50. Suppose your salary involves undocumented travel and entertainment, your take-home pay will be $90. But bus fares have gone up, so that leaves you with $80. You still have your job.
The extra savings that you had put aside at the credit union will yield $5 per month less, so your effective income can now only cover $75 of expenses.
Having done the maths and realised that effective income has gone down while your expenses have gone up, you need to do something to bridge the gap. So you go to a bank and you tell the bank manager that you want a loan to go to JB’s Supermarket. He bursts out laughing.
He does not have the same problem.
He can juggle his figures with impunity. He does not have to pay attention to moral suasion.
The example faced by this individual is now faced by the Government on a bigger scale, including the bank manager laughing in its face. It is dealing with an increased pay bill, funding transfers, subsidies and new social projects.
It borrows from the Central Bank, the commercial banks, National Insurance and a host of lenders (some of whom have already shut shop). So grave is its position that the increased VAT (Value Added Tax) comes into effect on December 1 before Christmas shopping – something like a blood transfusion.
Our private sector has hailed the Budget as reasonable, probably because its tax liability has not been increased. Over the coming months when people do the maths, and the withdrawal of purchasing power of over $200 million is felt, they may be singing a different tune.
There is an old Jamaican saying: “What sweeten goat mout does bun ’im tail.” Most of our private sector is comprised of buy-and-sell operations and is therefore susceptible to householders’ spending.
The one possibly bright star in the east is the strength
of the Canadian dollar that may boost our tourism. Other changes not anticipated may vary the landscape to such an extent that our “holding pattern” may serve us in good stead. But I would not hold my breath.
Actual spending power vis-à-vis the outside world, especially our main trading partners, will depreciate if President Barack Obama puts US$600 billion into his economy. The increase in VAT is really a further devaluation of the Barbados dollar to the consumer.
Doing the maths is daunting because the deficit gap is widening both for the Government and the individual. Unless there is growth in the economy so that the percentage of the gap keeps pace with the growing deficit, we would be fighting a losing battle. One way of easing the Government’s position is to take all of the local paper, stretch the repayment programme and renegotiate the rates like we do every day in the banks when a customer is ailing.
The banks have been summoned to the bench for their inconsiderate spread. I am sure that they are going to counter by carrying up their commissions. Already they are engaging in cannibalistic activity that is pure foolishness and smacks of the plantation mentality. Their goal
is to support the purchase of cars and mortgages.
In this state of crisis, can you believe that this is responsible banking? Government’s offer to guarantee will not bear fruit just so. A guarantee needs a willing lender prepared to back a feasible proposal.
There is a feeling that prices will even out because
of the withdrawal of the Environmental Levy. If that were so, what would we achieve by increasing VAT?
God bless Bim on Independence Day!
• Harry Russell is a retired banker. Email [email protected]
