Timing of proposed Budget measures all wrong
Thursday August 18 2011 | 04:54 AM

THERE are some measures in the recent Budget which are not likely to succeed in creating any serious impact on the fiscal side and growth in the economy.

Dr. Brian Francis, Economist at the University of the West Indies, Cave Hill Campus made this candid remark at the Barbados Chamber of Commerce and Industry (BCCI) post-budget breakfast discussion yesterday at the Hilton.

He explained that the difference between the 1990s and now is that Barbados in 2011 is facing a financial crisis that is unprecedented.

“The problem is that the fiscal crisis we face is structural in nature. Any budgetary proposal in 2011 has to deal seriously with the fiscal situation that the country finds itself in,” said the UWI lecturer. 

“It is a clear that there is no problem on the revenue side, which was why it was surprising that the Minister went the way of increasing VAT last year. The problem is within your own personal financial management, where you have to match your spending with your income,” according to him.

He said that Barbados is faced with the problem that the fiscal deficit is huge and continues to rise despite Government’s best efforts.

“Therefore to address the problem and to present proposals that make sense in 2011, we have to take serious measures to deal with the fiscal crisis. Based on what I have seen, I am not sure that the Minister of Finance has done that,” Francis reasoned. 

In fact, the Minister has glossed over the problems on the expenditure side, he told businessmen.

The economist maintained that Barbados and the Caribbean cannot tax our their way out of a financial problem.

“The only root to solve fiscal problems – particularly if you need to raise revenue – is to grow the economy. To grow the economy, we need to provide incentives to productive sectors so they could expand, hire more people and invest more,” according to him.

He admitted that while the Budget made some attempts to do that, the measures do not go far enough.

“I can understand the problem the Minister faces on the expenditure side, because the bulk of expenditure goes to wages and salaries, transfers and subsidies. Therefore, any meaningful attempt to reduce spending will have to see cuts in wages and salaries and see cuts in transfers and subsidies and those cuts would have to be intense,” he stated.

“However, given the experience of the 1990s, I could see why the Minister is reluctant to go that route; so instead, he prefers to rely on the issue of efficiencies. Unless there is something the Minister knows that I don’t, I can’t point to a single country where any such measures have worked and in the case of Barbados, given the extent of our problems, those measures – if they have any impact at all – the impact would be very minimal.”

Therefore, Francis indicated, “ You are still left after the 2011 budget with the very same problem you began with. The question is ‘What has the budget proposal resolved?’

“In economic circles, timing is key. There are times when policies are implemented, they are not bad policies; they are well-conceptualized but the timing is bad. Once again, we have bad timing by the Minister of Finance.

“In this economic environment, every effort should be made to boost individual confidence, business confidence and to boost investor confidence and I don’t know how the imposition of further penalties in relation to any tax could help this economy at this point of time. It may be a necessary evil but the timing is bad.”

Francis reiterated, “The continuous focus on revenue is a huge mistake that is going to hurt the economy badly in the long run, as Barbados’ problem is not the revenue side, the problem lies on the expenditure side. 

Therefore, the idea of implementing ad hoc measures to deal with the expenditure and not addressing it in a systematic way is going down a very dangerous road.

“If the Government is interested in raising revenue, they need to do this by providing incentives to stimulate growth in the economy and a tremendous amount of effort in that regard has to be placed on attracting foreign direct investment.

“The local private sector does not have the capacity to increase investment to the level that is desired to turn this economy around. Our investment climate needs to be addressed with urgency.”

In a summary of the performance, he pointed out: “In Barbados, we are in a fiscal crisis and not yet in an economic crisis, but if the fiscal crisis continues, we are sure to end up in economic problems later on,” he cautioned. 

“Therefore, any budgetary proposals at this time need to place tremendous emphasis on the fiscal side and I am not satisfied with the measures that are proposed and the extent that they will create a dent in the fiscal crisis to give me the confidence that this economy can rebound and hold its own in the future,” he added.