LAST WEEK, the absence of a minus sign did not convey the theme of my article that the net savings of Barbadians fell from $570 million in 2007 to -$404 million in 2011.
The change from positive savings to negative dissavings means that Barbadians are now digging into their savings to survive. This change in behaviour is consistent with little or no increases in salaries and wages, higher income taxes and VAT and certainly greater consumption because of rising prices.
At the household level, research has shown that a monthly income of $4 400 in 2007 would have had to increase to $5 488 per month in 2010 to keep the household at the 2007 standard of living. If any of the income was travel and/or entertainment allowances, the same household would have been even worse off in 2011 and beyond.
The Misery Index, as measured by the sum of a country’s inflation rate and unemployment rate, has almost doubled for Barbados since 2007. This simple index captures two of the more critical economic indicators to the household: access to employment and the cost of living. In fact, Barbados’ inflation rate is higher than in any other CARICOM country, which is a direct result of the increased VAT rate, the higher excise tax and a greater level of transactions in the economy following on the very poor performance in 2010.
Use of the “R” word
In the words of the Governor of the Central Bank of Barbados, the economy has grown for the last six consecutive quarters. This admission means that the Barbados economy is not officially in a recession since the second quarter of 2011, though the growth is anaemic. The problem is that when it suits the authorities they use the “R” word; when it does not suit them they speak of slow growth.
While the major economies in the western world have struggled to regain economic strength since 2009, it is the response of the Government of Barbados to the economic slowdown that is responsible for the economy’s current condition. The response has resulted in the worst fiscal crisis ever to confront this blessed country – all because of fiscal ignorance.
There is truly a philosophical divide on the economy. It was wrong to make households suffer more taxation to support the Government’s fiscal programme. Never in the history of modern Barbados has a Government chosen to dissave and then force households and businesses to carry its burden.
In the 1973 budget, then Prime Minister Errol Barrow spoke eloquently to the need for Government to have savings on its current account. This principle was a natural economic extension of the political philosophy of democratic socialism. The essence of the principle is that those who are to pay taxes should do so to such an extent that after taking care of current expenses, Government should have savings to go to the building of the country’s physical infrastructure.
It is therefore unbelievable that Minister of Finance Chris Sinckler, now being euphemistically called “Sink-Ya” by the public, is willing to debate anyone on the economy far less a trained economist with a proven record. This must be seen for what it is: another attempt to promote himself as something other than a failed Minister of Finance.
Government at sea
There is no need for any debate. There is a need for the minister to first understand the issues. Amazingly, the Central Bank Governor said that no one has any answers, yet the same Governor and the Minister of Finance have been boasting about the success of the Medium Term Fiscal Strategy.
The truth is that the current Government is totally at sea on providing leadership and should seek to rid itself and Barbadians of the misery. Sinckler recently argued in Parliament against increasing the spending power of Barbadians. Ironically, in the same debate, Prime Minister Freundel Stuart argued for Barbadians to become self-employed and to go further and create jobs for others. What an internal contradiction!
For any business to be created, it first needs to identify a market to trade its goods or services. Someone must therefore be willing to buy and that someone must have money to be able to do so. This is elementary commonsense, not economics. If the Minister of Finance is unable to appreciate this basic principle and the Prime Minister, surprisingly, cannot recognize it as a historical fact, then the country is truly trapped between a rock and a hard place.
• Clyde Mascoll is an economist and Opposition Barbados Labour Party spokesman on the economy. Email [email protected]