This week, I am compelled to respond to last Monday’s Budget presentation by Minister of Finance Chris Sinckler. I want to do so, however, in the spirit of the title of this column, since I believe with all my heart that sound economic policy is the most important thing that Barbados requires right now.
People have asked me what I would have done differently had I been in the shoes of the minister. It is a very intriguing question since that, unfortunately, requires first being a politician, which I am not.
I should disclose here that in the single politics course I read in the first level at the University of the West Indies, I received a C grade, which I’m sure was designed solely to spare the lecturers suffering through the grading of any further politics exam resits by me.
I should also add that I read the politics course with three Level II core courses in my major and received three As; yet, I was more excited and perhaps relieved at seeing the politics grade than those As that would actually contribute to the class of honours awarded to me upon graduation.
If I was indeed the Minister of Finance, my entire focus would be the engineering of economic growth of the Barbados economy in the shortest possible time frame. This means stimulus.
Up until now, our Minister of Finance in each successive Budget has increased taxation in some form or fashion, and has not made any real expenditure cuts to the magnitude of revenue-raising measures. As a result, consumer and business confidence has continued to wane as disposable incomes in households decline further.
The continued need for Government to close its fiscal deficit has reached the point where it is now officially crowding out private sector investment.
It is my view that business and consumer confidence needs a shot in both arms and legs in order for the domestic business climate to improve to the point where the country will be able to genuinely attract foreign investment. This brings the issue of credibility to the fore.
In my previous article, I cited some recent examples of the Government’s misuse of moneys in its possession. So you know, I couldn’t believe my ears on hearing the Government’s intended use of the Catastrophe Fund. Whilst it tugs on our collective heartstrings on hearing that these moneys are now intended to finance the Health Care Capital Expenditure Trust Fund, I know within my heart of hearts that once those moneys are removed from the Catastrophe Fund, the dog is dead.
I focus on this issue in particular for this reason. If I was indeed the minister, and knowing I was going to repeal the Catastrophe Fund, I would have delivered the Budget in August/September, 2014, and incentivised Barbadians to effect repairs to their homes and use the system of tax allowances to stimulate the construction industry. For a three-year period, I would have suspended all allowances and provided an aggregate $25,000 housing allowance, which would include but not be limited to home improvements, insurance premiums and renewable energy, with the strict condition that improvements met the minimum standards within the building code.
In addition, for homeowners to benefit fully from the tax allowance, they would have to provide information on all artisans working on the renovations much to the delight of BRA.
Though the Government over the years does not have a good track record with respect to maintenance of its properties, I believe at this point in time, given the lack of fiscal space, it would have been a more appropriate policy response to generate growth in the economy. This type of allowance is much more growth-oriented than child and spousal allowance, and even more so than contributions to trade unions and churches. Households would also have had much more scope despite the continued challenge with earnings.
Instead of liberalizing the bank minimum deposit rate to make Government savings bonds more attractive, that policy action would have been intended to get financial institutions to develop loan packages at concessionary interest rates in order for households to finance these renovations of their homes. Hardware stores, paint and other construction material manufacturers, small contractors, carpenters, masons, electricians, plumbers and all the other suppliers of construction-related services could get some of the action. Stimulus! Employment over the next three years would increase and, as a result, relieve some of the strain on the National Insurance Scheme.
Instead of the Government having to directly source funds to recapitalize the Unemployment Fund, the improved employment levels and associated payment of National Insurance contributions would organically replenish the fund.
Ultimately, these improvements to the housing stock should minimize the potential impact of natural disasters such as hurricanes, thereby requiring less direct intervention on the part of the Government, should such situations ever arise.
Lack of home insurance has traditionally been a bugbear for the country, and this measure I’m hoping would have gone a long way towards resolving this long-standing issue.
If I was the minister, I would also have convinced the Prime Minister and my other colleagues in Cabinet that the introduction of up to $130,000 annual fees for licences in April, 2015, by the Division of Energy on renewable energy for non-residential purposes runs counter to the Government’s public policy. I would have insisted that our national focus be squarely on reducing the cost of doing business, of which energy expenditure are an important part. These fees only serve to further damage the credibility of the Government’s public policy.
Government’s overall fiscal position will not improve materially without robust economic growth. In the protracted recessionary environment we are now in, the only way out is stimulus. I have proposed one alternative measure that would automatically create hundreds of jobs in the private sector virtually almost overnight.
Unlike COSCAP, I will not turn up in Bay Street for intellectual property rights or copyright infringement should something vaguely similar emanate from those currently administering our Government.
Space does not permit me to elaborate fully on the Budget, so I will endeavour to scribe a few words over the next couple of weeks before Crop Over fully sets in.
This proposal is one those shots that could jump-start economic activity and usher in a new way of thinking about economics today with tomorrow in mind.
(Ryan Straughn is a UWI Cave Hill and Central Bank of Barbados-trained economist.