No trained economist would have described the 2008 budget as deflationary since deflation is a steady decline of the price level. How could the imposition of $104 million in fees and taxation cause deflation? In fact the budget contributed to a rise in the price level and also assisted in contracting the economy. The clearest evidence of contraction in the economy is the significant fall in imports which has been identified by the Minister of Finance.
So the idle boast that the budget was not deflationary is as profound as saying that my mother is/was a female. Deflation is the opposite of inflation which is a steady rise in the price level. Given the steady rise in oil prices last year that pushed electricity bills through the roof because of the fuel charge clause and the general rise of prices normally associated with higher oil prices, the imposition of millions of dollars of taxation cannot be described as trivial.
The imposition of the taxation cannot be trivial in the context of Barbadians having to cope with high food prices, escalating electricity bills, rising water rates, more professional fees, greater insurance costs, increased mortgage payments, higher land taxes and land prices and growing cost of all services. How could the burdensome taxation be isolated from the circumstances confronting workers, households and businesses?
The Barbados economy witnessed a return to moderate inflation in 2006 and signs of a world recession were in evidence in 2007. Former Prime Minister Arthur was courageous enough to speak to the pending economic difficulties during the last general election campaign; no doubt with the assistance and possible advice of his major consultant on fiscal matters.
For this consultant to suggest that any criticism of government policy, regardless of which party is in power, is born out of political bias or posturing is to elevate himself to the status of statesman and to reduce everyone else to the intellectual dump. If the consultant is doing work for the current administration, it should be stated in public such that his statesmanship is beyond question.
In the post 1994 period when all kinds of observations were being made of the fiscal deficits and national debt, there were hardly any voices in support or in objection, now the voices are being heard from on high and with increasing frequency. This is an excellent thing for the country!
However, the economy needed fiscal stimulus since last year, it received fiscal neglect instead as the minister of finance preferred to wait and see, while imposing excess taxation. Fiscal stimulus comes in two basic forms: 1) reduced taxation and 2) increased expenditure. The choice of one or the other is based on incidence that is who is to be affected; the household, the private sector or both. This choice is driven by the need to expand economic activity primarily to maintain jobs with the understanding that there may be some loss of foreign reserves.
The loss of foreign reserves from enhancing spending in the economy is however grossly inflated as the estimate does not take into consideration the multiplier effects of spending a $1 and the high level of local value added to imported goods. The figure of 70 cents out of every $1 being spent on imports is absolute rubbish.
This recession does not match up to the difficulties of 1991/1992 at the macro‐level; perhaps at the household level, individuals are now more highly leveraged/indebted given the period of boom experienced in the aftermath of the previous recession. As a result, households have been living at the marginal and as a consequence the working‐poor are feeling the impact of this recession because of limited room for manoeuvre in their budgets.
In the circumstances, it was the government’s responsibility to stimulate economic activity in the short‐term. The structural issues of the public sector and the economy as a whole can only be addressed in the medium to long‐term. The two should not be confused!
