Still ducking and hiding

Tuesday’s Financial Statement and Budgetary Proposals (2013 Budget) turned out to be a presentation of a pretty comprehensive programme of “Adjustment, Reform, Recovery and Sustainability”.

It was clear that what was unveiled benefitted from wide and intensive consultations. No person awake in Barbados during the past year would have reasonably expected a Budget characterised by immediate relief — after all, given the scale and scope of the challenges confronting the nation, things will only get worse before they get better.

This is the nature of adjustment. Urgent action was required; therefore the Government outlined a policy agenda and a timetable cognizant of the high stakes economic drama that has been unfolding over the past few years. The Stuart administration seemed to have risen to the occasion. The Budget was not perfect but it took on the most pressing issues of deficit, debt and sustainable economic growth.

If the proposals of the 2013 Budget were presented and adopted in 2010 (rather than what was served up then), Barbados would be much better off today! Some may ask, what is meant by that statement? The answer is simple, prior to the 2010 Budget, public finances were imperiled by plummeting revenues onset by the contractionary effects of the Great Recession of 2008-2009.

Organic growth of public expenditure and additional expenditure resulting from the policies of a new administration also contributed to an unsustainably high fiscal deficit. These two deficit drivers took place in the context of a domestic recession brought on by an unprecedented global recession.

The appropriate macroeconomic policy response ought to have been a balanced approach that entailed tax increases, current expenditure cuts and stimulative capital formation. Tuesday’s Budget epitomised that type of medicinal economic m√lange.

The central flaw of the 2013 Budget is the inclusion of new tax measures, the most egregious being the 50 per cent reduction of the reverse tax credit. Coming on the heels of the 2010 Budget which ostensibly was a revenue raising juggernaut, no new taxes should have been pursued at this time.

It simply isn’t good economics, it definitely isn’t good public policy and it certainly isn’t good politics. You can’t tax your way out of a recession or a structural current account fiscal deficit. Moreover, it’s easy to argue that the Barbados economy is currently overtaxed, and that excessive taxation is retarding economic growth and creating hardship.

Indeed the Government has admitted that its previous tax measures were also intended to dampen consumer demand in order to maintain a healthy level of foreign reserves. It was an admission of a deliberate, considered policy to shrink the economy.

Having said that, the rest of the Budget was well thought out, bold, pragmatic, erudite and appropriately tailored for the challenges at hand. When it’s all said and done, Tuesday’s Budget could easily command a “B” grade.

The growth initiatives were not only appropriate; they appeared to be the product of a Government that recognises the importance of revitalising tourism and international business in the short to medium-term while laying a platform for sustainable green energy and economic diversification in the long-term.

The capital works programme bears the hallmark of stimulus, capacity building and foreign exchange earning potential. This programme will be financed from foreign sources and will auger well for growth and development. Financing the announced capital projects with foreign capital will shore up the foreign reserves and stave off the risks of a Balance of Payments crisis and/or devaluation. Government’s eyes are certainly on the ball.

There are two secondary criticisms of the Budget which are worthy of exploration. The first critique is that some of the expenditure reduction measures lack detail. One striking example was the announced $35 million cut in the transfer to the QEH.

No details were given on how the operations of the hospital will be impacted, how the quality of and access to tertiary healthcare will be affected or if Barbadians are going to be called upon to pay for select medical services. I guess we have to stay tuned.

The second reproach is related to the public sector reorganisation announcement. It was merely an announcement of a previously cited plan to merge, restructure and/or disband some 18 statutory corporations that operate in the spheres of public housing, sports, facilities management, investment, sports and, youth and cultural affairs.

Sinckler announced that a report on the public sector reorganisation initiative will be presented to Cabinet in December, followed by broad consultations in 2014, Cabinet endorsement and implementation. What’s at stake is $130 million and 1,600 jobs.

The policy thrust in this regard is not only welcomed, it is necessary. However, I am bewildered by the protracted timetable and absence of a plan at this stage. The problem which this solution applies to did not emerge since March 31 this year; this problem yearned for a solution of this nature pre-2009. The minister ought to have been in a position to propose an imminent blueprint for public sector reorganisation on Tuesday.

Regrettably the Budget offered no plan for comprehensive reform of Barbados’ antiquated public service. Though it may be recognised that the Stuart Administration sought to minimise the adversity that will flow from its fiscal adjustment program, it could also be accused of ducking and hiding from some of the critical decisions that it will be forced to make before the end of the current parliamentary term.

Finally, there was one statement which Sinckler made that raised my economic eyebrows. He told the nation that the collective $1.5 billion capital works programme “will not have a direct impact on the deficit”. I think what the goodly gentleman meant to say is that the capital works programme will not be financed with tax revenues.

Most certainly the non-Public Private Sector Partnership projects will hit the capital expenditure line of Government’s financial statements as well as the stock of debt as foreign loans are disbursed for project costs.

There will be those who will perpetuate a hue and cry about the announced tertiary education policy that will require Barbadian citizens pursuing studies at UWI campuses to pay tuition fees from academic year 2014/2015.

As was indicated in previous articles appearing in this column, the exponential growth of tertiary education enrollment at UWI since 2007 presented financial costs to the Government of Barbados that became increasingly unaffordable.

The mounting costs to taxpayers for tertiary education could not be sustained, especially during this period of economic turmoil. The Government had no choice but to ask students and their families to share the burden of investing in higher learning or place a cap on enrollment. Given the history and philosophy of the DLP, the Stuart Administration would have made this policy choice reservedly; a last resort. No one takes any glee in this development but it was simply inevitable.

As far back as 2005 it was apparent to discerning minds that given the data, at some point in the near future Barbadians would have been called upon to contribute directly to a portion of the costs attendant to their access to tertiary education and healthcare. The BLP has also recognised this. It is part of the reason why the BLP floated the idea of tax allowances or tax credits for registered savings plans for tertiary education and health insurance policies.

Tertiary education and healthcare are two of the largest drivers of the fiscal deficit, only secondary to debt servicing expenditure. Perhaps now that students are about to have some “skin in the game” pertaining to investment in their education, they will take their tertiary education journey more seriously and seek to maximise their return on investment.

Much of Tuesday’s Budget will hinge on prompt and effective implementation. Here’s hoping for a best case scenario. Our future and our children’s future depend on it.

* Carlos R. Forte is a Commonwealth Scholar and Barbadian economist with local and international experience.

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