WHAT MATTERS MOST: Between a rock and a hard place
The discovery of the secret details in the Fiscal Consolidation Programme, which the government of Barbados has agreed to with the Inter-American Development (IDB), has serious implications for the calling of the general elections. In every sense, the Government is between a rock and a hard place.
The Value Added Tax (VAT) rate of 17.5 per cent expires at the end of this month and by law reverts to 15 per cent. Minister of Finance Chris Sinckler promised to review the VAT rate and the tax on entertainment and travel allowances. If the law says that the rate goes back to 15 per cent, then a review could only mean that the minister is considering not allowing it to do so.
On the other hand, a review of the tax on allowances must mean that he is considering removing or reducing the tax.
While the promise to review was being made, the legitimate expectation was for relief from taxation. However, it is now known that Minister Sinckler sold keeping both the VAT rate at 17.5 per cent and the tax on allowances for US$33 million to the IDB.
This is where the politics and the economics collide. Given the upcoming election, the politically expedient thing to do is to offer tax relief in the June budget. Having set the fire, the Government comes over as the firefighter.
Unfortunately, Prime Minister Stuart remains slow to action and his Minister of Finance appears quick to action with the attendant reversals. The political judgment of the wordsmith is once again brought under scrutiny that reflects negatively on his decision making.
Imagine a minister of finance has stumbled at every turn, yet he is more popular than his Prime Minister! It is very simple: politics is about perceptions, not facts. There is a reason why prime ministers are ministers of finance in Caribbean politics; it is the position that carries the image of the leader.
Yet a Prime Minister gives this position to his greatest rival, when his rival is no more capable than he is, in relation to understanding the issues. More so, there is one other who is more capable than the two of them put together with respect to the issues and is a better political choice. It is the height of political ignorance for a man who professes extraordinary wisdom.
What may appear the politically expedient thing to do for the Government is very short-lived. If the Government is prepared to suck the nipples of the households and businesses in pursuit of its political agenda, then at some point the “milk” has to dry up. To attempt to reverse this act of exploitation only for political benefit is now too obvious but such does not stop the politicians.
To provide relief to the taxpayers, the Government is now hoping to suck the nipples of the IDB, having already drained the Central Bank, the National Insurance Scheme (NIS), the commercial banks a nd the taxpayers. But access to the IDB requires it to keep the tax policies permanent. This is the rock and the hard place!
The country’s international credit rating is one class above junk bond status and any deviation away from the International Monetary Fund-inspired budget measures of December, 2010 will mean an immediate downgrading.
Furthermore, rather than using the IMF in an unofficial capacity to get access to the IDB’s money, the Government will be forced into an official programme with the IMF.
In the current circumstances, the money which the Government is hoping to receive from the IDB for the tax measures already in place would come from the IMF. Somehow the IDB is making money available for a partial IMF-type stabilization programme.
The Barbados economy is at that stage where the decision-makers are simply compromised because they failed to adequately diagnose the economic problems. Part of the failure had to do with their desire to blame the international economy. Unfortunately, the Government is prepared to “ride a cock-horse to Banbury cross”.
There is no doubt that a spirited effort will be made to provide whatever relief is possible in the budget of June and in May it may be too soon to read the mind of the two contenders. However, rest assured that whatever is done will be done in the interest of the ruling party.
The revelation of the secret contents in the Fiscal Consolidation Programme with the IDB has rattled the cock horse.