I have been asked by readers of the column to offer not only criticism but some advice especially because of the pending economic difficulties and also in light of the apparent daze that seems to have engulfed the country’s leadership.
One of the first pieces of advice given in this column was to borrow from foreign sources as soon as possible after January 15. On reflection, it would have been an appropriate policy stance given what has unfolded in the World’s financial markets in recent weeks.
Of course, we now know that the new Democratic Labour Party is obsessed with the size of the national debt and not its structure. In government, the structure of the country’s debt is paramount and with foreign debt accounting for only 28 percent of the country’s total national debt, the strategy to limit the foreign borrowing to the level of foreign repayment in a given year is appropriate. In opposition, the focus is on the size.
In the prevailing circumstances, the protection of jobs and the maintenance of real spending power in the economy ought to be the two most important things on the minds of those responsible for the country’s economic management.
The leadership must not be sucked into the conservative view that this is the time to cut-back on all government spending. Real fiscal stimulus ought to be the order of the day; it is broad-based government policy that is designed to stimulate consumption, savings and/or investment.
Two weeks ago, I wrote: “The individual/household earns income from some productive use of labour and/or capital; this income may be consumed or saved. The income which is saved may be added to profits of the businesses to create a pool of capital for further investment”.
I also wrote: “Therefore fiscal stimulus comes in the form of reduced taxation for individuals, households or businesses or increased wages and salaries designed to put more spending power in the economy. It could also come in the form of capital projects with a heavy emphasis on job creation”.
In view of the request made of me, I offer the following not-for-profit advice designed to: (1) counter the economic downturn; (2) contain job losses; (3) restore some of the consumers’ spending power. As a result, government’s fiscal deficit may increase by about 1% of GDP and the foreign reserves may decline by about $40 million as a result of the measures. Popularly referred to as counter-cyclical fiscal policy!
Please note that the increase in public sector wages and salaries should have been “planned for” at the beginning of this fiscal year.
The first stimulus in the economy would come from a speedy and adequate increase in wages and salaries for public sector workers. The increase should be two-tier with those at the bottom receiving a higher percentage increase because low-income workers do not benefit from income tax reductions and inflation affects them disproportionately.
There is a category of worker in Barbados who earns too much to get the reverse (VAT) tax credit and too little to pay income taxes. The highest paid worker in this category must be the upper limit for the higher percentage increase. Of course, this is only the principle; the actual numbers would better determine the upper limit.
The second stimulus would come from a fair adjustment to the rate applied to property taxes. It is unreasonable for government to benefit outrageously from the improved value of properties which can only be realized if the owners sell their properties. And if the properties are sold, then the government benefits from the property transfer tax among other things.
The third stimulus is to ensure that energy prices are brought even lower in line with the reality and it is not too late to reverse the decision on diesel prices. The multiplier effect of such changes would be more than welcomed.
These initiatives are not exhaustive but necessary!
