It should be obvious that if you drown the economy with taxation, one of the reactions will be the drying up of the availability of money in the local market. People will only spend on essentials and there will be a propensity to save for a rainy day. This has been seen in the case of Barbados.
Actually, the savings benefit Government as the commercial banks have to invest further in Government-related paper – bonds, treasury bills and debentures. So inundating the economy with taxes has the opposite effect to creating spending opportunities that then create growth in the economy and hence profit from which taxes can accrue to Government. We are seeing the opposite in Barbados. (Massy just accumulated over $45 million in taxes improving their turnover by a massive $1/2 billion, according to their balance sheet).
In an article last week I pointed out the effect of low interest rates. What we want is less Government involvement in the economy and more participation by the public. That is our conundrum. What is Government doing with the taxes collected? We have doubts as to the efficiency of use. Ministers gallivant to all parts of the world, return and are conspicuously cloaked in silence. Not their money but a waste of ours.
Did not Japan offer cash to its citizens after the economy took a beating following on the tsunami disaster? People were told to go out and spend the money given. Now the economy is bouncing back. Of course Japan has a huge local market but that does not deny the idea.
The clarion call to resurrect the ailing tourism industry is worthy of note. Worthy of note too are the strange negative comments from those closely attached. The saying about man rats living in the same hole may apply even when the female gender is considered. When it isn’t one thing it is the other.
We are living from crisis to crisis. The hospital crisis looms, then the waste crisis, then the non-payment of wages crisis, the waste tax crisis, the potholes in the road crisis, the gunplay crisis and the shooting of youths, now the crisis in our tourism as it wallows at .04 per cent growth.
Worse of all are the students who do not trust the word of the Government that they will pay into the university the promised loans for tuition, as they fear that the Government will pay with IOUs. A sorry reflection!
Hotels come in all sizes and cater to different pockets. It is all well and good to go after the high-end tourism, but only if we are offering high-end services and quality. Encouragement must be given also to smaller hotels and restaurants that cater to the “low end” tourist – of which we have many.
This is where a development bank had played and can play a significant role. There are development funds all over the world that can be accessed by development banks. As a matter of fact, in a G20 summit a while back the International Monetary Fund was granted $50 billion as a guarantee for development banks as a fillip to world trade. But we do not have a development bank.
When we had one, 30 per cent of its portfolio was dedicated to the hotel and restaurant business. So perhaps we should get our hotel industry working first and look not only to the Sandals but also to the small units like the Croton Inn where the Wild Coot tries his best to entertain on Saturday nights.
The need for a development bank is patent. The Central Bank will attest that one of the problems of the commercial banks is the non-performance debt of hotels and restaurants. They are in need of the help that used to and can be given to them. So while you are helping the high rollers, there are those that need help with their balance sheet.
There are those that flounder under light and water rates and taxes. Those are the hotels and restaurants that cater to the “low-end” tourism and have served us before.
The overseas hoteliers who have been granted major concessions should be aware that to whom much is given, much is expected in terms of repatriation of payment commensurate with occupancy levels and services. “But Wild Coot,” said a perceptive old lady, “don’t the new hotels have to pay back to themselves the heavy expenditure now undertaken and they don’t need to pay tax here?”
• Harry Russell is a banker.
