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WHAT MATTERS MOST: Blame bad fiscal planning


Clyde Mascoll

WHAT MATTERS MOST: Blame bad fiscal planning

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Last Week, it was stated that a middle class crisis has accompanied the fiscal crisis of the Government. This assertion was not reached by accident. Prior to 2008, our income tax system was used to effectively redistribute after-tax income in favour of the middle class.
Note just a few facts prior to 2008: (1) first $2 083 of income earned per month is tax-free; (2) maximum insurable earnings of about $4 000; and (3) first $2 016 of taxable income is taxed at 20 per cent. Increasing the income tax threshold and lowering the marginal tax rates, not to mention incentivizing investing and saving were deliberate policies designed to encourage an ownership class.
The tax reforms in the post-IMF programme of the early 1990s gave the middle class the room to spend and at the same time invest in mutual funds, pension plans and shares. These reforms recognized that spending, saving and investing are at the heart of economic growth.
The notion therefore that a Government has to wait on an international economy is absolute rubbish. If this notion were true, why would we need a Government in the first place? Why would other developing countries be performing so well at this time? Why would this country have performed well enough in the past to consistently rise on the Human Development Index?
No one is discounting the importance of the most conducive environment for economic growth and development, but to plead impotence as a Government makes no sense whatsoever.
In the absence of a plan to govern, a political party is subject to the kind of errors so evident since 2008. The lesson learnt is that political parties need to be tested on their plans to manage and lead in achieving social and economic objectives pleasing to the electorate.
The region’s very recent political history suggests that while the salacious is entertaining and offers opportunities for rumour and scandal, the time has certainly come for the electorate to grade political parties on the truly important issues.
The emergence of the middle class was built on a foundation that reinforced the need to “educate, agitate but do not violate”. The fight for labour rights and voter enfranchisement set the social framework for free education. As a consequence, a middle class emerged.
So it took the paving of a social environment followed by the right economic policies to create the middle class. As stated earlier, over time the income tax system was used to assist in redistributing after-tax income.
This was best done between 1993 and 2007, after an initial attempt in 1986 that was aborted in 1991. Failure to study and understand the lessons learnt from the early 1990s is responsible for the country’s fiscal crisis and not the international economic environment.
The most fundamental lesson learnt was that managing Government’s fiscal position is paramount. In practical terms, this means having enough revenue to cover Government’s current expenditure. This simple practice has been completely ignored.
Unfortunately, the middle class pays the bulk of the country’s income taxes and has had to carry the burden of adjustment for the Government since 2008. Typically, a Government is in a position to assist households and businesses in times of need, but the reverse has happened over the last four years.
The level of assistance started with large increases in road taxes, an unnecessary rise in the VAT rate, increasing land and property taxes in a soft market, higher professional fees and the taxing of allowances.
Notwithstanding these heavy impositions on the middle class, the Government has been unable to build a road over the last four years and has instead specialized in confusing roundabouts.
A fundamental principle in the management of the Barbados economy has been lost on the current Government, to the extent that it is going to require a comprehensive evaluation of the damage done before corrective policy measures are put in place.
In this regard, the time is appropriate for the electorate to grade political parties on how they address the genuine issues affecting them and not on the rumour and gossip that have become the yardstick for evaluating competencies and skills.
There is no excuse for any Government to destroy the country’s economic fabric on the altar of political expediency.

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