LEFT OF CENTRE – Put plan in place to boost spending

THE BARBADOS GOVERNMENT has been under enormous pressure in the past three years to curtail the steep rise in public expenditure, thereby reducing the fiscal deficit and the loan to gross domestic product (GDP) ratio. 
It has suggested that this is vital if this country is to regain economic growth and prosperity. 
The explosion in current expenditure is highlighted by the fact that this item rose by a massive 39 per cent in the four years since the 2006/2007 fiscal year, at an average of over nine per cent annually, well above the rate of inflation and times greater than the rise in GDP. 
On the other hand, capital expenditure declined from $357 million in 2006/2007 to a mere $146 million in 2010/2011. Thus the increase in spending was not directed at better positioning the country’s productive sectors, but was just to pay wages and buy goods and services.
This resulted in the overall fiscal deficit increasing from 2.8 per cent to 8.7 per cent of GDP over that same period.
This is unsustainable and there is an urgent need to address this situation. The rating agencies have all hinted at further downgrades if the fiscal deficit is not immediately reduced. This would be disastrous for this country. 
A steep decline in expenditure cannot take place without a serious loss of jobs in the public sector since wages and salaries account for about 60 per cent of the current expenditure.
The private sector must therefore be put in a position to take up the job losses. Thus expenditure control must be accompanied by an overall programme that would involve putting more money in the hands of people, especially those with a high marginal propensity to consume.
It would also entail reversing some of the impositions of the past four years, including the value added tax increase and the excise tax hikes.
The high tax and fee impositions in the 2008 and 2009 budgets did not work at all; tax revenue in 2010/2011 was only three per cent higher than in 2006/2007. Maybe lower tax rates might bring about higher tax yields.
Wages levels ought also to be increased at maybe a little under the rate of inflation.
People are presently unable to cope with the steep rise in the cost of living, consumption has declined and thousands of jobs were lost in the distributive sector.
This sector would be unable to make up for any shortfall in the public sector unless demand increases. The loss of tax-free travel and entertainment allowances have hurt the vulnerable middle class; they are the ones whose spending helped reduce unemployment a few years ago.
Yes, we must undertake sensible expenditure controls but it must be part of a plan to resuscitate the productive sectors and create conditions for increased spending within the economy. 
Luckily, there has been enough foreign reserves available for a limited increase but workers must be put in a position to engage in sensible spending. 
We must also eliminate those programmes that are of a political nature and add nothing to either the country’s productive capacity or its already generous welfare system.
Reductions in Government expenditure alone will not solve our problems but are the first step towards their resolution and must be seen as only part of the solution. However, they must be implemented as soon as possible.
 
Tyrone Barker is a statistician and former senator.