WHAT MATTERS MOST: Govt dis-saving too heavy
I have come to expect the unexpected, but for the Governor of the Central Bank to say that nobody has the answers to Barbados’ current economic problems makes no sense.
If there are no answers, why is the Minister of Finance bringing a Budget to Parliament at the end of June?
The Budget therefore cannot contain answers, since the Governor is obviously the chief economic adviser to the Government on all matters – monetary, fiscal, debt and all other areas of the economy. Indeed, it seems like the Governor is now truly a creature of the Government.
I have come to expect the unexpected. So when the Minister of Finance says that he has cut Government spending by a couple hundred million dollars to help reduce the fiscal deficit, I am forced to think aloud.
Now, just over 50 cents out of every $1 spent by the Barbados Government goes to the payment of wages and salaries. Therefore, if the Government cuts spending by such a whopping amount, then obviously, the payment of wages and salaries would be affected.
Since no Government worker has been affected, it clearly means that the money to pay the workers is coming from another source. So, in effect, Government spending has not been cut; it is simply not being recorded in the Government accounts. The cut is false.
Apart from everything that we know about inflation, unemployment, economic growth, the fiscal crisis, the high debt, among others, there are two other indicators that John Public would better understand.
The Government is dis-saving and so too, are households. Dis-saving is the opposite of saving. It occurs when consumption exceeds income. It therefore occurs when you spend more than you earn. For you to spend more than you earn, you have to use your savings or borrow. The former is dis-saving.
Governments do not save in the same sense that households do, so they have to borrow or tax when their consumption exceeds income. It is therefore irresponsible for any Government to spend almost $600 million more than it earns through taxation. This is the current account deficit to which this column has referred ad nauseam.
Fortunately for some of us, there is a trained statistician/economist who has developed information on the national accounts for Barbados. Mr Ronald Prescod worked at the Central Bank and is retired, and his statistical skills are highly respected by those of us whom he trained.
He does not conduct his own survey, rather he uses information from authentic sources to produce the national accounts – the Barbados Statistical Service and the Central Bank of Barbados. The information starts with the familiar gross domestic product (GDP) from which net disposable income, net savings and net domestic product (NDP), among others, are calculated.
The net savings of Barbadians fell from $570 million in 2007 to $404 million in 2011. This figure is consistent with little or no increases in salaries and wages, higher income taxes and, certainly, greater consumption because of rising prices.
Like individuals, the Government has gone into a phase of dis-saving since 2008. This is seen in the current account deficits of between $125 million and $590 million over the last four years. This fiscal ignorance is the source of Barbadians’ economic misery as the Government has overtaxed them to maintain its spending.
Our economic circumstances may be summarized in the numbers showing the dis-saving of both the Government and households. It does not take a rocket scientist to appreciate the nature of the problem when put in human terms.
Therefore, it is easy to see what is required to address the problems.
The suggestion by the Minister of Finance to the Opposition that it will send home civil servants is reflective of his ignorance. The way out of the dis-saving is through growth and sending home civil servants is anti-economic growth.
So heavy is the dis-saving of the Government that while admitting that the VAT brought in $184 million more than was anticipated, the Minister of Finance argued against offering tax relief to the public.
Having sold the excessive taxation to the Inter-American Development Bank (IDB) for $66 million, the Government has lost its ability to reason.
• Clyde Mascoll is an economist and Opposition Barbados Labour Party spokesman on the economy.