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THE HOYOS FILE: Paint on the soles of their shoes 


Pat Hoyos

THE HOYOS FILE: Paint on the soles of their shoes 

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“If you’re going through hell, keep going,” – Winston Churchill.
The great man, who was – at least in his public persona – the eternal optimist when democracy and freedom were at their lowest ebb in Europe and Britain, perhaps meant to imply something positive.
Keep going and you will eventually get out of hell. Stop moving and you will remain there.
Unfortunately for Barbados, we stopped in economic hell for far too long. As long as we could find something external to blame, the government took the easy road instead trying to hightail it out of there.
As long as it could continue to borrow, it continued to follow its central philosophy that, being a society first and an economy perhaps somewhere much farther down the totem pole, it would be better to keep everybody on the government payroll until the world economy improved and things came right again. As they naturally would, just like in the old days.
The tourists would come back, the sun would be shining and the government, which “held hands” with its employees in the public sector through the long night, would be seen to have done the right thing all along.
But by the time Prime Minister Freundel Stuart took office in October 2010, it was clear that we were going to be in for a longer world recession than had been experienced in decades.
To shore up government’s revenues, the new minister of finance, Chris Sinckler, raised value added tax (VAT) by 2.5 per cent and removed the tax waivers which allowed the middle-income earners to carve out personal and travel allowances from their taxable income. He also increased the excise tax on fuel by 50 per cent, on top of the increase announced 18 months earlier by the late prime minister David Thompson shortly after coming to office.
Apart from giving the Treasury more cash flow to pay wages, salaries, pensions, debt service and all the other costs of running a highly subsidized slew of statutory corporations and government departments, via its catch-all category transfers and subsidies, the government had another purpose in raising all of these taxes.
It was to slow consumption. Slow consumption? Why would you want to do that? Because consumption uses up foreign exchange.
Having enough foreign exchange in reserve is the sine qua non of a country like ours, whose economy requires anywhere from 60 per cent to 80 per cent of foreign inputs for every Barbados dollar we trade with each other. We only “add value” to services, raw materials, finished goods, food, beverages, chemicals and so on which we sell to each other.
But the problem facing every government is that if you only dampen local demand and fail to increase foreign demand (for example tourist spending in our hotels, restaurants and taxis, exports of our excess domestic manufacturing production, offshore sector spending locally) you will never get out of hell.
And if at the same time the country’s largest employer and procurer of goods and services does not return to fiscal sanity for five years in a row but continues to overspend at unheard-of levels, then you are running the economy as if your policy was based on the tale of Dr Jekyll and Mr Hyde.
Your increased taxation is dampening consumer spending and therefore shrinking the economy you want to see expanded, while your own bulging payroll spending is spurring on the very same demand you want to rein in.
Now, you might think that keeping those people employed and spending so much in the economy (last June the government said it would have to cut $400 million from this year’s budget) would keep our market buoyant, even in the tightening grip of increased direct and indirect taxation.
It didn’t happen.
The first news was good: For fiscal 2011-12 (which ended March 31, 2012) VAT and excise tax revenues went up and helped government get its lowest recorded deficit (under six per cent), and there were genuine hopes that the worst was over.
It seemed the policy of “holding hands” (that euphemism for excessive spending) was working. But a funny thing happened on the way to the Treasury. VAT revenue and excise tax revenue fell back the following year, which ended March 31, 2013, and for the first two quarters of the current financial year.
Mr Sinckler said the other day that it was due to the worldwide recession. Who knows? That is such a broad brush to paint with. The few times something seemed to be going its way, the administration claimed it was due to their policies. And when things go wrong they say it is he global recession.
Even now, having once more failed to follow its own increasingly tough economic prescriptions outlined in its three strategy documents, the prime minister is still trying to avoid doing what all three fiscal strategies require: cut expenses.
He seems unwilling to leave the manicured premises of that famous retreat where reality does not intrude. It is called the last resort.
More and more he sounds like a man who has painted himself into a tight corner and still believes he can walk out of the room anytime he likes without getting paint on the soles of his shoes.
• Pat Hoyos is a long-standing journalist and publisher of the?Broad Street Journal.

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