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WHAT MATTERS MOST: Taxation not the answer

Dr Clyde Mascoll

WHAT MATTERS MOST: Taxation not the answer

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The Barbados government is selling the soul of the country if it intends to make substantial changes to the tax system purely for the purpose of raising additional revenue.

The system is the fundamental tool available for influencing the allocation of our scarce resources by the Government and, if its only purpose is to raise taxes, then there is no need for a government.

The principal purpose of this Government cannot be to fix the books, after presiding over the country’s losses. It must be to create a policy environment that gets the best out of the private sector and households. The real danger comes, as is currently the case, when the Government’s preservation is paramount.

There must be a price paid for self-inflicted wounds. No one should be lauded for setting a house on fire that destroys half of the house and be rewarded for saving the other half. More directly, a government cannot set back a country by its incompetence and feel entitled to continue.   

The dire fiscal situation cannot be solved by raising revenue through higher tax rates and broadening of the tax base. In fact, the evidence from the last six years demonstrates this beyond a shadow of doubt. Yet the Government seems obsessed with raising taxes as the easier solution to the existing problem. There is only one solution and that is the return of sustainable growth to the Barbados economy.

It continues to amaze me, and indeed amuse me, whenever some commentators ask for solutions to the country’s economic problems. Such requests typically come from the fence-sitters who are of two persuasions: supporters of the Government who are embarrassed, and “independents” who are balanced. They share the view that there are really no workable solutions to the problems and playing for time is the only way forward.

The fence-sitters are quick to associate professional opinion with personal attack on the Government’s economic advisers. It is now being suggested that there is dislike for these individuals. Personally, it is disrespect for persons whom I revered and admired for their studied and steady opinions that are no longer recognisable or reconcilable with the very recent past.    

For convenience, Barbados’ major economic concerns may be reduced to two things: the rapid growth of the national debt and the dramatic deterioration of the fiscal position. In both cases, the concerns are measured in relation to the gross domestic product (GDP) that is the fiscal deficit/GDP and the national debt/GDP ratios.

If the two ratios have grown substantially in recent times, it is commonsense that they can be reduced in one of three ways: (1) reduce the numerator – fiscal deficit and the national debt; (2) increase the denominator – GDP and (3) do (1) and (2) together.

However, it must be noted that increasing the fiscal deficit and the national debt can assist in increasing GDP that is growing the economy. Indeed, the major problem in the last six years is that the two increased dramatically at the same time that the economy was declining significantly. Unfortunately, the two combined to cause some of the economic decline.

The disgraceful occurrence betrayed all of the lessons learnt in this country’s economic history and is currently undermining the gains that were won through hard-fought political and economic struggles.

The concept of hard-fought may seem excessive only because the governments of the past had a touch and a sense of timing that emulated our great batsmen, such that significant milestones were achieved without apparent effort. The current Government is by comparison a “swiper”.

How else can one explain the Government’s inclination to tinker with the tax system for so-called quick gain/runs without regard to the medium and long-term outcome of the economy/match? This speaks to a 20/20 mentality when the reality is that the country is in the grips of a prolonged Test match being played on home soil with foreign umpires.

Unfortunately while the players are home-grown, the umpires are determining the state of play. The country’s soul is at stake and the natural flair for which our players were renowned is being controlled by the foreign umpires, even when there is no formal agreement to justify the control.

Bewildered spectators sit in silence as our players fail to impress with both bat and ball, not knowing that the strategy for the match is being imposed from abroad. The team’s/country’s soul is being sold and the spectators’ future compromised.

Dr Clyde Mascoll is an economist and Opposition Barbados Labour Party adviser on the economy. Email [email protected]