Murdonomics is killing us

Murdonomics is that set of economic and tax policies promoted by the Murdoch news empire based on the proposition that profits are more important than people. This premise is at the foundation of the economic and taxation policies which constantly call for more reductions in rates for businesses and upper-income earners on the basis that they are the “job creators”.

After the recession which followed the crushing oil crisis of 1973, the rich wing (sometimes known as the right-wing) in the United States blamed socialist economic policies for the collapse of economies which actually were brought to a standstill by the hyper-inflation that resulted from the enormous increase in price of power generation and transportation, which raised the cost of simply everything.

The Conservatives argued that progressive taxation policies which taxed the rich and big business at rates higher than the working population reduced profits available for investment, strangled businesses and caused stagnation, which limited growth in the economy. They also complained about many of the regulations put in place to protect ordinary working people and consumers from exploitation, as being too much government red-tape, which squeezed businesses and prevented them succeeding.

First Mrs Thatcher in the U.K. in 1979, followed by Ronald Reagan in the U.S. from 1980, began a process of reducing the higher tax rates and regulations which had been put in place by Labour governments after the two World Wars to try to improve the conditions of ordinary working people.

Mrs Thatcher’s efforts in particular were supported vigorously by the newspapers owned by Murdoch, who later expanded his empire to include print and television media in the US where he is a strong sponsor of the Republican Party and of Donald Trump.

Following the proposals set out in the Powell Memorandum Attack on American Free Enterprise System, which Greenpeace calls A Corporate Blueprint to Dominate Democracy (‘Google’ explanation in Wikipedia) written in 1971 as a blueprint for the American Chamber of Commerce in which“Powell urged conservatives to take a sustained media-outreach programme; including funding scholars who believe in the free enterprise system, publishing books and papers from popular magazines to scholarly journals and influencing public opinion,” right-wing Conservatives and business interests used their financial power to disseminate a set of economic theories intended to reverse the progressive policies in place since the Depression which had created conditions for the rise of the middle-class, by advocating reducing the size and power of government, privatizing many of the programmes and services provided by government and reducing direct tax rates on higher incomes and profits, replacing them with indirect taxes, duties and sales taxes on goods and services which disproportionately impact lower-middle and lower income earners.

What does this have to do with us in Barbados?

These rich-wing policies were espoused by Western economies in the 1980’s and 90’s and promoted in the developing world  through U.S. and European control of organizations such as the World Bank, IMF and WTO. This influence at first helped to counter the destructive economic policies of Communism and far-left Socialists whose overspending and corruption wrecked many post-colonial economies and ended in financial disaster for many countries after independence.

This rebalancing process in Barbados was started by Tom Adams after he won the election in 1976 and his rationalization of the tax policies and other economic strategies was able to rescue Barbados from the Depression which followed the 1973 oil crisis and the disastrous management of the Barrow administration in its final years. This, together with the growth in tourism during the late 70s, and the fact that Barrow had not followed the far-left policies which had destroyed the Jamaican and Guyanese economies, put Barbados on the path toward the type of development which made us the envy of other developing countries.

After the failure of Communism and the fall of the Soviet Empire in 1989, the extreme left economic counter-balance was removed and mainstream economic teaching shifted considerably further to the right, funded by groups such as The Heritage Foundation, set up following the suggestions in Powel’s memo, to emphasize the interests of business. Their theories, publicized by the rich-wing media, led by Murdoch’s news empire, advocated more and more tax breaks for the upper income levels and particularly reductions in rates for corporate interests based on the fallacy that lower tax rates would encourage businesses to invest and create more jobs.

This model ignores completely that such tax cuts reduce revenue to Government, requiring either tax rates on ordinary workers to increase to compensate, increased Government borrowing, or the country is starved of essential revenue for development and infrastructural spending.

Many Western economies now find themselves in the situation where infrastructure is crumbling, budget deficits are too high, loan repayments are crippling and the majority of the ordinary working population is overtaxed by higher basic tax rates (B’dos lowest rate used to be 5%, now is 16%), reduced allowances and increased indirect duties and sales taxes, like VAT. Yet upper level and corporate income and wealth is increasing at historically unprecedented rates and a growing wealth gap threatens social unrest.

The answer, according to the rich-wing, is more austerity for working people, more rate reductions for businesses and the rich – who will reward us by creating jobs – higher sales taxes on working people and less spending by Government on development.

In Barbados this policy has been progressively followed by the last three administrations over about 30 years, increasingly so since 1992, taking a leap with the introduction of VAT in 1997 and very aggressively in the recent decade to the detriment of the middle-class.

This has resulted in a continuing shift of the greater burden of taxation down from corporations and upper-income earners on to the backs of ordinary working people to the extent that the widening wealth gulf is now very evident and the majority of the population has no discretionary income to spend, having to cut back continually on essentials, which is affecting smaller businesses, many of whom have had to close, putting even more people out of work, further reducing the size of the economy and inhibiting growth.

Since the credit crisis in 2008 we have had nothing but austerity and belt-tightening, nothing has improved and yet the experts prescribe more of the same. If you put an obese person on a diet and they lose weight, then become sick because they are underweight, you prescribe another diet (because it worked before) and expect them to get better?

Since 2008 ordinary Barbadians have had nothing but tax increases and new taxes imposed. VAT increased by 2.5% (for 18 months supposedly); allowances cancelled; Consolidation Tax (now discontinued); NRSL two per cent, now increased to ten per cent, as well as new import duties and fees such as the foreign exchange fee. Yet services have deteriorated and important infrastructure such as the hospital, the sewerage system, the water distribution system, garbage collection, the transport buses all are breaking down to a level this island has not experienced in living memory.

Recently, in Britain there was the tragedy of the Grenfell Tower fire and earlier in the  US the scandal of the poisoning of the Flint water system with lead. Both clear examples of how “austerity“, as defined by Mr Murdoch and his rich-wing followers ultimately affects working people.

I have not done corporation tax for many years and only recently discovered, when checking some information on the BRA website for a friend that in the run up to the financial crisis of 2008, between 2004 and 2007, corporation tax was reduced from 40 per cent to 25 per cent. A loss to the Revenue Authority and Government of 15 per cent of all corporate profits in the island and a reduction of 37.5 per cent of corporation tax revenue.

Perhaps that was the reason Government needed to supplement its revenue with another 2.5 per cent VAT to compensate for the loss in corporate taxes? Maybe someone at BRA could inform us how much the loss of 37.5 per cent of corporate tax revenue would amount to over the last ten years (2007-2017) and how much it would have saved ordinary Bajans in tax increases since 2008.

Recently one of the banks released its financial statements for 2016. On an Income before Taxation of $39 million they paid $7.5 million in tax (19.2 per cent). This is far less than the middle class/upper income tax rate of 33 per cent and not much more than the lower income tax of 16 per cent. Businesses (or corporations) have no limits on the expenses they can deduct from gross income in calculating their taxable income as individuals do with their “allowances”; they do not pay VAT and any other taxes on their goods, or expenses, are recovered from their customers in the prices they charge, therefore they never suffer double taxation of their income in the way that individuals do. That is why it is so unfair to equate in any way the rates of corporation and income taxes.

Traditionally corporation tax rates were much higher than income tax rates for just this reason, but Murdonomics argues that businesses making profits is more important to a national economy than the spending power of individuals and this has justified rich-wing policies of reducing taxation on corporations and recovering the shortfall from the wages and salaries of working people.

Theoretically this reduction in corporate taxes (if the Murdonomic experts are right) should have resulted in new companies being formed, new investment coming into the island and many new jobs being created. The only result was to encourage a barrage of foreign and regional conglomerates to take advantage of our little Stock Exchange to raid our most successful businesses and force buyouts – BS&T Group, B’dos Light & Power, Banks Breweries, B’dos Bottling Co. and Pine Hill Dairy, Cable & Wireless, Brydens, Stokes & Bynoe. Apart from the Goddard Group, there is no major local business left. Instead of new jobs, these groups, along with the banks, consolidated, closed branches and laid off staff. I completely fail to see how this policy benefitted the Barbadian economy.

As one example of how discriminatory these policies are towards the top income-earners and against ordinary working people, in 1992 under the Sandiford regime, Ordinary Share Dividends were removed from taxation on the basis that paying corporation tax on profits, then shareholders being taxed on dividends payed out of those profits was double taxation. In the same Budget – and both effected from July 1, 1992 – National Insurance contributions, which previously were not taxed, became subject to taxation. No amount of argument that taxing NIS contributions, which are in themselves a type of tax, and then taxing sickness, maternity, unemployment benefits, or pensions paid out of those contributions amount to double taxation, has been successful by BARP or any other organization.

So taxing both profits and dividends received by those who can afford the investment in a company is unfair double taxation and needs to be adjusted. But taxing NIS contributions of working people and taxing NIS benefits paid from those contributions is NOT double taxation and is perfectly acceptable – in the very same Budget. It’s one thing for the rich and something else for the rest of us. This is a clear example of “Murdonomics”.

There are many other examples, particularly since 1992 (a Budget which was heavily IMF influenced) and I would like to encourage some of our young university students who are currently on Summer vacation to start a project to document and analyse the changes in rates, allowances and new types of taxes, researched from the newspaper accounts of the annual Budgets from the archives, going back to the 60s.

I would like them also to consider the kind and pace of development which took place in the last 50 years and what type of tax structure existed during each period of development in order to establish what tax structure works best, instead of simply accepting foreign, ideologically driven economic theories.

I do not advocate a ‘return’ to the far Left Socialist economic strategies of the past, upper tax rates of 90 per cent (B’dos highest if I remember was 75 per cent), or price controls and Communist type Government dominance of the economy, such as is now destroying Venezuela and has handicapped Cuba for so long. I say ‘return’, because Barbados never went that far Left.

Some balance is necessary between the needs and interests of ordinary working people and the business class. However, under the powerful influence of the rich-wing media and American Conservative free enterprise exponents we have now moved our economic balance too far right, to where the working population are overburdened with taxation, while those who can most afford to pay are free to use their spare capital to increase their wealth, dominate the property market, or take it overseas.

I’d like to see a commission established under the leadership of an eminent retired group, headed by someone of the stature of Henry Forde or Harold Hoyte (no former Prime Ministers or Finance Ministers please), including representatives from Church, Unions, NGOs such as BARP, etc. to study how taxation structure influenced our development since Independence using empirical data researched by our students covering changes in proportion of taxes raised through direct/indirect raxes, raxes on earned/unearned income, relative proportions paid by corporate/personal taxes, proportions paid by different income brackets – adjusted for inflation – over different periods.

This should be set against data such as, for example, numbers of new water, electricity, telephone connections (obtained from various utility companies); land purchases by Barbadian citizens (from Land Tax dept.); new businesses formed (from company registry) and opinions of older persons (over 50’s) to discover the five/ten year period of greatest development to be surveyed by Cadres – who have made enough money to do this as a public service, using university students to conduct the survey.

Obviously other factors will have contributed to the development at different periods. The object of the study should be to determine what mix and level of taxes is most effective for growth of the economy by juxtaposing the tax and development data for each period. The Commission’s work should inform a national conversation on taxation out of which the next Government can create a tax structure which helps the economy to grow and the greatest number of persons to benefit, because the current structure is obviously slanted towards growth for a few only and bare survival for the rest of us, which will lead eventually to social unrest and a repeat of the conditions which resulted in the 1937 riots.

I propose this idea after being thoroughly disgusted with the shallowness of a proposal given by Solutions Barbados of a ten per cent tax on gross income, with NO deductions, for all individuals and businesses, which they claim is “affordable, FAIR, easy to pay”. Simplification of complex challenges can be a good idea, but there is also simplicity bordering on idiocy and I am afraid this proposal is totally idiotic and shows a lack of understanding of the basis of taxation policy.

It stems from lazy thinking and greed by those who think it is “fair” to ask a cleaning lady with two children to get through school to pay the same proportion of her wages in taxes as a successful young professional, with no dependants, who travels overseas for holiday, has a big car and house as well as investments which make him more money. I had this lecture from a German holiday home owner in Sunset Crest in 1997 when the VAT came in. It turned my stomach then – literally I felt nauseous and was unable to drink the juice his housemaid had just brought me – and it does the same now.

Suppose someone proposed we stop wasting all these resources on different styles and materials and we all wear the same material, in the same style; we all live in the same size house – regardless of married, or single, children or no, everybody should have a two bed, two bath – no three bed, one bath – house and we all wear the same size shoes. This is obviously ridiculous, as we are all different, our needs and resources are different. We all contribute differently to our economy.

In fact, when I come to think of it, the above ‘one size fits all’ proposal appears to be a Communist one and we all know how successful their ideas were.

One Response to Murdonomics is killing us

  1. Springheadgirl August 9, 2017 at 9:54 pm

    Brilliant analysis. We need a lot more thinking like this.

    Reply

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