WHAT MATTERS MOST: Let’s look at the big picture
The observation that the opposition could not have done anything differently with respect to the fiscal crisis confronting the current administration is simplistic to say the least. It speaks to a level of political “yardfowlism” that elevates emotion above intelligence. There are some who fail to see the big picture and are guilty of such observation.
No one man or one institution knows it all. But those who make an effort to analyse their environment, regardless of the discipline, ought not to be accused of professing to know all. In many respects, rather than assess the analysis, the temptation is to judge the author.
Somehow, the label of being bright is worn by a few from youth to old age, especially by some fortunate enough to go to “high school”. The reality is that brightness is associated with the young while wisdom is acquired with age. The former may be genetic or environmental while the latter is experiential. There is no guarantee that one follows the other.
If such thought is applied to a nation and not an individual, it may be argued that our country’s budgetary process benefited more from our collective wisdom than our perceived brightness.
This brings me to a symposium held at the University of the West Indies, Cave Hill Campus, on November 5, 1988. It was entitled Issues, Problems and Prospects in Public Finance and Financial Proposals on Barbados and the Organization of Eastern Caribbean States. Contributors included economists, economic historians, political scientists, directors of finance and planning, central bankers, businessmen and students among others.
There were several contributions worthy of mention in this column, but space is limited. However it was the following observation of Barbados’ leading public finance economist, Michael Howard, which captured my attention: “. . . Prime Minister Barrow was very much colonial in his tax policy, although he was progressive in his expenditure policy, and he pursued a colonial policy of very heavy taxation – very heavy income taxation – as well as indirect tax.” He was referring to the period between 1966 and 1973.
He further stated that “It was in his expenditure policy that he was not colonial, in terms of free education, social security and so on. And I think that was a fundamental difference in that transitional period where the colonial norm of a balanced budget persisted.
He [Barrow] believed in balanced budgeting – there must be enough revenues to finance expenditure and some left over to finance capital expenditure.”
The first expenditure to which he was referring is current expenditure that is revenues must exceed current expenditure, which gives rise to a current account surplus. Barrow himself spoke to this in his 1973 budget. Therefore this fiscal principle is the result of collective wisdom and not one-upmanship. It was followed by every administration prior to 2008.
There ought to be no more political cockfight over the country’s fiscal crisis. The current Government is simply wrong and this must be accepted for change to occur.
Howard also observed that the Tom Adams government started the policy of income distribution around 1977 by introducing tax rebates for lower-income groups and others, which continued in a gradual way up to 1985. By 1986, a more aggressive approach of heavy income-tax cuts was followed. It was understood that the very heavy income taxation had to be addressed.
Notwithstanding the income tax relief, the principle of current account surpluses was never compromised. By 1997, with the introduction of the VAT and the contribution of the international business sector to corporation taxes, the Arthur administration embarked on a course of more dramatic income tax relief. But the above principle, born out of collective wisdom, was maintained.
At the same 1988 symposium, Owen Arthur posited: “The experience of Caribbean economies, in my view, is one in which by postponing dealing with fiscal problems as they arise, we translate problems which otherwise would be manageable into problems which are structural in nature and which eventually undermine the functioning and the buoyancy of the economies.”
These are not only words of wisdom but prophecy. Barbados now has a structural problem in its fiscal accounts as well as structural issues in its economy. The key to revenue growth is economic buoyancy not increasing tax rates.
The country’s collective wisdom with respect to economic governance has been ignored and some still want to pretend otherwise. The time has come to truly and truthfully see the big picture.
• Clyde Mascoll is an economist and Opposition Barbados Labour Party adviser on the economy.