As a colony of Britain, Barbados was forced to run a balanced budget. With the attainment of Independence came the right to run fiscal deficits, but with the right also came the responsibility to live within our means.
This is a fundamental responsibility which, for the most part, our Governments have taken seriously.
Since the establishment of the Central Bank in 1972, the right has at times become a privilege, given its ability to “print money”. At our lowest ebb in the early 1990s, the Sandiford administration increased the printing of money but, as has happened last September, the deficit has now effectively gone to 20 per cent of estimated revenue.
In 2008, the current administration found a way of printing more money and increased the limit without seeking parliamentary approval.
Conscious of its actions, the administration is expected to bring that situation to an end on March 31, 2012.
The secrecy attending the limit increase was most disturbing. This week’s Estimates Debate in Parliament has all to do with the Government’s ability to finance its excess spending.
Yet, the members of Parliament are not privy to the most fundamental issue affecting the preparation of the Estimates.
If a Government is so irresponsible that it spends over $500 million more than it collected in revenue, without taking account of spending on capital projects, such behaviour has severe consequences for the two other agents in the economy – households and businesses. In short, the irresponsibility of the Government puts an enormous burden on the two agents to find already scarce financial resources to support such misguided behaviour.
The irresponsible fiscal behaviour has led to excessive taxation via the higher value added tax (VAT) rate, taxes on travel and entertainment allowances, increased professional fees, more road taxes and excises, to name some of the measures. This all happened at a time of rising food prices, bigger electricity and water bills and generally higher living costs.
The impact of this self-interested behaviour is real on all Barbadians.
No wonder the percentage of poor households has reached 20 per cent and is growing. Workers have not had wage and salary increases to match the increased cost of living and Barbadians are overtaxed simply to justify the irresponsibility of the Government.
As a result of poor fiscal management, Government has now reached a stage where it is boxed in by the reduced ability of households and businesses to help finance its excessive spending.
As early as September 2011, the Central Bank of Barbados noted that “the Government has decided to reduce its deficit in fiscal 2011-2012
to 5.2 per cent of [gross domestic product] or approximately $461 million”. It was also noted that despite some gains, “Government has been unable to make some payments on schedule”.
The figure of $461 million is virtually the same as the $456.7 from this week’s Estimates. This is a remarkable coincidence since the Estimates would not have been completed in September. This demonstrates that the Government is not in control.
In September, the Central Bank noted that the Government was encountering financial difficulties for the following reasons:
1. The “printing of money” was already at its limit of $249 million;
2. No new external funding was available;
3. Commercial banks were reluctant to buy Government paper;
4. The National Insurance Scheme could not sustain its financing.
The Central Bank therefore recommended:
1. Increased fiscal consolidation;
2. Use of the domestic financial markets; and
3. The use of judicious external borrowing.
The board was invited to:
1. Formally approve the current excess holdings of primary issues;
2. Approve a temporary increase in the limit of primary issues held by the Central Bank from $120 million to $250 million until March 31, 2012.
It is clear that the unavailability of financing forced the Government to produce the figures in this week’s Estimates. It is equally clear that the holdings of “primary issues” exceeded its limit but because parliamentary approval is not required, it was not even known and did not become an issue.
The VAT rate is not expected to return to 15 per cent and the taxes on travel and entertainment allowances will not be removed. It will be interesting to see what happens to the temporary increase in the limit of primary issues come the end of March.
It is all about the unavailability of financing!
