“Borrowing to pay the interest on debt is a financial disaster waiting to happen which any teenager with a credit card could have told the minister.”
Barbados 2011 Budget Statement: A failed opportunity by the DLP Government
By Hal Austin in London
A Global Overview:
The global economy is in the throes of a major historic swing, with economic power moving gradually, but irreversibly, from the old developed economies to the newly Emerging Markets, led by China, India and Brazil, but including nearly all of the Asian, ex Japan, Latin American economies.
This is evidenced by the interesting fact that while the old economies – the US, UK, euroland and Japan – are in terrible trouble, about to fall back in to a double-dip recession, the Emerging Markets are continuing to grow at astronomical rates.
“Barbados is caught in this bind, an over-dependence on the old markets for tourist traffic, while not making any real effort to deal with the growing new economic powerhouses.”
To find a solution to this crisis, first the government must know what the problem is. And there is no evidence that the government or central bank has been treating the global economic crisis with the seriousness with which it deserves.
The global financial crisis of 2007/8 was not caused by the traditional inflationary or balance of payments shocks, (but? *) by the build up of historically high imbalances in the property sectors in Europe and the United States, the packaging of that debt and the subsequent contagion across markets. (* Editor’s note: The manuscript we received from Mr. Austin is unclear whether the word “but” might have been omitted from this location. Would Mr. Austin kindly email us to advise. Thanks!)
The following recession and attempts at a subsequent recovery have all been atypical with uneven economic growth, fiscal crises in the southern part of euroland and a battle between the Republican-controlled Congress and the Democratic-controlled Senate over macroeconomic policy, which has undermined confidence and looks set to plunge the world back in to a double-dip recession.
This broadly is the global landscape in which the Barbados government is functioning and which the Budget on August 16 was meant to provide the necessary fiscal and monetary cover for local businesses, consumers and workers.
The Budget: An Overview
Sadly everything in the Budget was predictable and uninspiring – the old clichés, the rhetoric, the criticism of adversaries, the over-dependence on civil servants and party hacks for ideas.
“The threat to issue bonds to reduce Bds$1bn in debt, with a target of $755.3m during this financial year, is a not so clever way of passing on government debt to bondholders, many of whom will be households.”
Mr Sinckler told the House: “In the next five years, maturities of the medium term securities will increase from $256m in 2012 to $413.6m in 2016. Consequently, if the deficit continues to be at the 2011/2 level, annual issuances of local debt will increase to approximately $1bn in order to satisfy maturing issues and to finance the deficit.”
This says it All. The government will be issuing IOUs to cover debt owed to other IOU owners and to finance its continuing current account deficit.
This is not only unfair, but to my mind borders on the fraudulent, since government is highly likely to default on these long-dated promises, certainly not priortise them for the honouring of coupons since they will have little or no impact on the much-treasured credit rating agency approvals.
This is a government that has failed to meet pensions and salary obligations for workers.
What makes this policy particularly ill-thought out, is that clearly the government has lost the confidence of the global lenders, it has lost the confidence of regional lenders and it has not turned to households, who no doubt will be mainly pensioners and people looking to diversify their savings, to fund this massive black hole which the government has done nothing in two Budgets to reduce.
Over the last year the economic outlook in Barbados has worsened, with the public sector caught in a spending and employment vice and the private sector, even outside the troubled hotel and tourism sector, now threatening to lay off staff.
Banks and other shadow banks are not making any noises, either about lending to small and medium enterprises or even to consumers to kick-start the economy.
That little activity there is in the construction sector is mainly inward investments, mainly by firms catering to the offshore market, wealthy individuals building holiday homes and so-called returnees using their lifelong savings in Europe and North America top resettle in the country of their birth. There is very little evidence, outside the public sector, of any new builds taking place across the country.
But we know, according to a recent parliamentary debate, that there are about 30000 people badly in need of a home. We also know, that even in many of the modern apartments and houses sometimes we have two, three and even four generations living under the same roof. That, in any language, is overcrowding.
Nothing in the Budget speech addressed this problem and it is a problem.
Public Sector spending
The proposal to reduce public sector spending in line with the Medium Term Fiscal Strategy is grabbing at straws.
It is worth quoting the minister to get a full feel: “The government is working towards the attainment of the goals set out in the medium term fiscal strategy and it is the policy of the government to regularly review the efficiency of government’s expenditure programmes and seek, where possible, to remove wasteful spending, remove excess spending due to inefficient and uncoordinated/unshared procedures, reduce cost overruns and improve service.”
But this is a summary of the public sector and its massive inefficiencies, from 21-days sick leave for established workers, to automatic entertainment allowances for senior public servants.
Let us take, for example, the 21 sick days established public sector workers are allowed (presumably negotiated by the Social Partners), then multiple that number by the number of established workers and assume, which is legitimate, that all established public sector workers take their allotted days, which they are entitled to do, and see what the total number is.
That will give us an idea of the cost, based on the average public sector salary, of this payroll liability. And, to do this, it has taken the Inter-American Development Bank to bring such basic efficiencies to work with the support of the ministry of civil service – of course there is a technical assistance loan.
The reality, of course, is that instead of imposing caps and cuts to some statutory bodies, they should be privatised in a gradual and orderly way and in the case of the University of the West Indies , a radical and modern model of funding should be put in place. The endowment schemes used by US Ivy League universities is a good example of affordable funding from the state and others.
Further, when critics say that government uses the national insurance board as a piggy bank, its supporters are usually up in arms, but here is the minister suggesting designing ways for the NIB to lend money to the tune of $110m to the UWI, Transport Board, the Barbados Tourist Board and Needham’s Holdings Ltd. This is the light of the much-vaunted prudence.
Free Education for All?
In fact, as already suggested, a proper funding proposal needs to be put in place for the UWI, and get rid of the Barrow-inspired myth of free education from infant school to university. The bill is paid for by taxpayers. It is not free.
More importantly, the Transport Board should be restructured, including ridding the roads of the chaotic ZR vans, relocated to St John , the poorest parish, then privatised through a combination of a staff buyout and household shareholdings.
Any funding to Needhams Holdings, and that is questionable, should be on an equity basis and the Barbados Tourist Authority should be self-funding. How ever the minister looks at it, with revenue of $2.455m and expenditure of $3.361m, that is still a deficit of $900m, which to the minister realises: “Currently we are borrowing to finance the total amount of annual debt service. This is unsustainable as we need to get to a position where we borrow to finance only the repayment of the principal and make a contribution to our capital budget.”
Borrowing to pay the interest on debt is a financial disaster waiting to happen which any teenager with a credit card could have told the minister.
But, even more, it is not only the massive fiscal and current account deficits which burden the nation, but more so the off-balance liabilities, including pensions and socials benefits, health and the numerous so-called guarantees which render the Barbados government bankrupt.
And, further, borrowing to repay the capital means that he will still be in a hole over a long period – shifting debt is not prudent management of public finances.
Land tax policy needs a radical review, removing hotels and villas from the rebate/exemption category and taxing commercial agricultural land on a normal corporation tax basis. The idea of exempting agricultural land came in in Britain during the second world war and continues for no sound economic reason.
The decision to exempt solar energy and manufacturers of solar energy products is also a poor excuse for a sound energy policy, based on solar, wind and wave energy, with a set target of supplying 75 per cent of domestic energy needs within five years – which is achievable – and forcing all new commercial offices, hotels and big capital projects to meet their own energy and water needs through wind/solar/wave combines and small to medium water purification plants.
This should be backed with a sound transport, energy and land use need, funded through the road tax system, with a rebate/temporary exemption for vehicles based on size and use of green technology.
To give up to 50 per cent in a land tax rebate, rather than an exemption or rebate on the corporation tax, appears a bit misguided. It is not the land that is being treated with a light touch, but the activity of the business. Clearance from the inland revenue department and VAT section only introduce an unnecessary tier of red tape.
Environment and Energy
In his energy/environmental proposals there is nothing at all about recycling and the energy needs that could be met by a coherent and well funded recycling programme – paper, metals, plastics, motor oils, etc.
The minister also offers a 20 per cent ministerial duty waiver on the importation of ‘approved goods’, but does not define these goods. Is there any condition that this 20 per cent waiver should be passed on to consumers, or is it a ‘sweetener’ for the companies?
The same goes for the exemption on land tax for the hotel sector. The reality is that if hotel owners are in trouble with cash flow or profitability, they should be encouraged to go to the market for a remedy. They may obtain a secured loan from banks or other lenders, sell and leaseback the property, since the hotel as a business does not depend on the land; they can get government/private equity/venture capital on a loan for equity or repayment basis. There are any number of financial arrangements they may access.
It is not the role of government to rescue family-owned hotels and restaurants that are badly managed on the spurious grounds that they provide important tourism accommodation.
Over-valued Bajan Currency hurting tourism
There are better ways of ‘funding’ the tourism and leisure sectors, and the first of these is by reducing the painfully over-valued currency by decoupling from the Greenback, pegging against a basket of commodities, pegging against a basket of Caricom currencies or pegging against a basket of reserve currencies and commodities, or simply floating.
A cheaper Barbados dollar will attract more tourists, from other Caribbean islands, the growing Latin American Emerging Markets and from the more traditional markets in Europe and North America .
“It is a failure of our tourism marketing strategy that we live within a four-hour flying radius of 600million people and they do not feature in any significant way in our global tourism marketing plan.”
The minister has also offered an energy conservation and renewable deduction of $25000 for registered small businesses, but again there are no obvious conditions. Does this mean cash, by way of a waiver on corporation tax and national insurance, how? And how about allowing companies to write off up to 150 per cent of the cost of renewal energy up to five years?
But there is an elephant in the room which remains mentioned, but not fully discussed, and that is crude oil. It is just over one hundred years that the discovery of the internal combustion engine led to a demand for oil. And, in that historically nano-second oil and its misuse has brought the work to the brink of an ecological disaster.
The proposed changes to income tax filing are also cumbersome and bureaucratic. It is a perfectly legitimate accounting for business people to try to offset loss in one business area against profits in another. What would be more simple is to make payroll deductions on a pay-as-you-go basis and, those people in fulltime occupation while running a part-time business, would file separately for their part-time earnings.
High net-worth residents
The proposal on the taxation of high net-worth residents by amending the Income Tax Act, based on a proposal made by the late David Thompson, is wrong in principle and scandalous as taxation policy.
Apart from the fact that this comes out of the confusing in our nationality, citizenship (not the same as nationality), immigration and residential legislation, and how this interacts with our Caricom commitments and taxation legislation, the reality is that the super rich who come to our nation to settle should not receive any taxation privileges.
First, it is giving a privilege to those foreign-born residents who only use Barbados as a base but carry out their business in other jurisdictions. This proposal needs to be revisited.
More importantly, these super-rich people do not add anything to the economy, apart from a few domestics and security guards. Even if they need medical attention they fly out to Miami .
The waiver of interest and penalty programme, which allows people and corporations in debt to the state to negotiate a waiver, is simply misguided. People or firms not paying their taxes should be punished according to the law, no special waivers or rebates. Failure should lead to securing the debt against their property, for individuals, payroll deductions, or insolvency.
The discipline of paying taxes when due is important and central to any properly functioning government. Even if we were to excuse the late payment of national insurance, income or corporation tax, how can the minister negotiate a special deal with firms already in position of sales tax, money collected at the point of sale or service?
Then to compound it by giving a so-called conditional amnesty to those people who have not paid any income tax prior to 2007 is gross incompetence.
People who have not paid any income taxes prior to 2007, four years ago, should be up before the court, names and shamed, and punished according to the law. No compromising on the outstanding $252m owed in tax. That money could be used for a variety of purposes, including creating jobs for the army of unemployed youths.
Financial Services Commission legislation badly flawed
Included in the Budget Statement is the rather strange provision for the Financial Services Commission to review aspects of the Occupational Pensions Benefits Regulations – which took eight years to get on the statute books. Legislation surrounding the FSC is badly flawed and again needs revisiting.
We also need a single consolidated Pensions Act to bring all occupational pensions under a single defined contribution regime, which every adult over the age of the state school leaving age should be compulsorily be a member. Such legislation would consolidated the fifteen or more pensions Acts, including about three or four teachers’ pensions, the parliamentary pensions, which perversely allows a member of parliament to get a full salary if rejected by the electorate after being elected on three consecutive elections.
“The Parliamentary pension perversely allows a Member of Parliament to get a full salary if rejected by the electorate after being elected on three consecutive elections.”
A simple and fairer regime would be a six-month resettlement gratuity payment and that is it. It would be the responsibility of members of parliament, like other workers, to make provision for their own pensions. Politics is not a career, but a public service.
The other pension that needs repealing is that which allows the governor general and other senior public servants to retire on a 100 per cent pension. What that means, for those who do not fully understand, is that the governor general, prime minister and others can retire on a pension 100 per cent of what they are paid as salary.
First, the governor general is usually, or should be, appointed after a lifetime of professional and public service. In other words, he or she is not being governor general as a gift of a reasonable salary late in life. It is a reward for a job well done. Again a reasonable gratuity should be and that is it. Of course, they should be a hardship fund for any senior public figure who falls on hard times, but that is something totally different than an entitlement.
Then there is a provision that will send pensions professionals howling with fear, the introduction of income drawdown for those with defined contribution pensions on retirement.
Critiquing a flawed Budget Statement is not the time or place to expose the incredible ignorance of pensions pension provisions in the developed world. But the dangers in the policy are simple: income drawdown policies were first introduced in 1995, since then we have had capped and flexible drawdown, but the basic principles remain the same, provision must be made so that the beneficiary cannot drawdown his/her entire pension at a mature age.
Apart from the fact that a badly drawn up contract with flawed investment strategies can lead to someone being penniless at an advanced age, and that liabilities for social care falling on the government, good providers put a bar on people with a pension pot below a certain amount.
In the UK pensions advisers usually warn retirees not to take out income drawdown – taking a regular income out of the retirement pot – if the pot is below £150000.
In such circumstances it is better to take out an annuity, which is a lifetime contract between the provider and annuitant, based on the contractual provisions. For example, if the annuitant has a pension pot of $250000 and takes out a basic annuity paying six per cent annually, that means that the annuitant would have an annual income of $15000 until they die.
It is also important to realise that on death whatever is left in the pot goes to the insurance company, not the dead person’s estate.
So, if twenty-four hours after taking out a $250000 annuity the annuitant collapses and dies, the entire pit goes to the insurance company. This is the smoothing mechanism at play. Those who die prematurely pay for those who live beyond the actuarially assumed years.
My fear is that the minister and his senior advisers, including pensions lawyers (not generalists who play at pensions) do not fully understand the complexities of modern pensions and retirees are set to lose a massive amount of money in flawed contractual agreements. The minister should seek advice from pensions experts from outside the region.
However, the key is not to enter a contract offering a deal which could prove to be disadvantageous in later years. You have to think of inflation and longevity. There are other forms of annuities, called flexible or variable annuities, of which the most important is that an impaired life annuity will be better almost all classes of annuitants.
Basically, anyone who is a serial smoker, a heavy drinker, suffering from any serious illnesses, such as diabetes, is entitled to a life impaired annuity paying more than the usual, since the annuitant is expected to die earlier. It is almost certain that life offices in Barbados do not mention impaired life annuities.
The minister’s Budget Speech said it all: “I therefore propose that the Occupational Pensions Benefit Regulations be amended to permit a drawdown account to be used as a variation on the form of pension payment available to a member upon retirement from a defined contribution plan. The drawdown account will permit controlled withdrawal of pension benefits over a period of time within a defined contribution pension plan.” This is frighteningly different of the way pensions are managed from New Zealand to Canada and every developed society in between.
His reference to cruise companies instructing businesses and attractions to obtain global insurance before getting contracts to transport their travellers, and, further suggesting preferred insurance companies based outside Barbados is an clear example of bullying.
All that is needed is that these transport and other companies must be legally insured to carry out the appropriate business in Barbados, no other jurisdiction. If the cruise companies insist with their likely illegal demands, then bar them from doing business in Barbados . That is what government is about, not being urged by those who would do anything for tourist business to allow any dubious demands. There is no need for any tax exemption. Our jurisdictional integrity is at stake. But, typically, the minister gave in to pressure from interested parties. This is not government.
The noise around agriculture only goes to inflame the general uncertainties around a viable agricultural market and the lack of a proper national programme as a central part of a land use policy.
Instead of using up our arable land to build redundant apartments, office buildings and roads, we should have had a land use policy in place with a proper allocation of agricultural, housing and recreational use, including the re-use of brownfield sites.
Instead, we tend to abandon our best sited brownfield sites – ie the City – and rush to build on greensites. We also lack any sustainable leisure or recreational plans for the use of the few open spaces throughout the country.
A good example of this is Blenheim, which has not been properly improved since the site was taken from old man Fields back in the 1960s. Weymouth is another example, which has not been improved since Combermere had to abandon the site now used as the Transport Board back in the 1950s.
A simple marketing policy for locally produced agricultural products is for the marketing board to contract to buy all local produced fruit and vegetables at reasonable wholesale prices. And retailers, including hucksters, supermarkets and hotels, will buy from the marketing board at a wholesale price with a recommended retail price.
One question is why is he reducing the interest rate under the Agricultural Development Fund to under the rate of inflation? This is further economic lunacy. The simple answer is to offer the troubled plantations a loan for equity deal; those who want it would take it, those who do not would not.
He also mentioned the creation of an exempt trading floor as part of the introduction of an international securities market. Again, it appears as if the minister and his advisers are choosing to ignore development in more mature markets. If the proposed Exempt Trading Floor is meant to duplicate exchange traded funds, the only advice to him is to proceed carefully.
Both the Securities Exchange Commission in the US and the Financial Services Authority in the UK are carrying out inquiries in to the provision and management of ETFs. ETFs are very good retail investment products in principle, but only the physical products, exchange traded commodities and other versions are high-risk products.
Further, the underlying embedded in third party risks, that is the party undertaking the investment risks, must be transparent. Then there is the controversial issue of charges.
Total Expense Ratios, as a measure of charges, are opaque when it comes to actively managed ETFs since it is the charges for each trade that drives up costs. The minister should take expert advice on this and not from officials who have no market experience. But what is going to be the tax framework for these products?
On housing it was an ideal opportunity to turn the National Housing Corporation in to a hands-off social housing authority, managed by its own executive and senior management board and reporting annual to parliament, not to the minister. But turkeys do not vote for Christmas and this minister is certainly not going to propose removing power from one of his colleagues.
Apart from that, the proposal to handover government property to owners, presumably whose rents are fully paid up, is irresponsible, given that there are 30000 people either homeless or living in over crowded conditions. There are other ways, such as encouraging these people to move in to owner-occupied accommodation, or offering the homes to them at reduced prices.
The point is that government is borrowing money to build social homes while at the same time giving away publicly-owned property. In any case, people with illegally built extension should automatically lose the right of ownership.
The reality is that the housing problem, can be met by the private sector, but there is a mindset among policymakers in the Caribbean, and in particular Barbados , that the public sector must meet all social needs.
With proposals for ETFs, these vehicles can be used as the main source to fund a dynamic housing sector, while at the same time assist ordinary people to invest in bricks and mortar property and in commercial and residential property indices. Again the government can kick start this by relocating the moribund Transport Board from occupying one of the best commercial and residential locations in the country, preferably to St John, as the poorest parish and transfer ownership of the site to a Real Estate Investment Trust.
With good architectural plans, for shops, offices, leisure use and a variety of apartments, from single-rooms to four and five bedroom family flats, such a development could be a huge commercial success – from selling off-plan to sales on completion.
What this calls for is imagination and an open-mindedness to business which neither main party in Barbados, since constitutional independence has demonstrated.
Sovereign Wealth Fund
The other vehicle could be a sovereign wealth fund, created through consolidating all the various lending and guarantee funds, maybe even putting the National Housing Corporation under its umbrella, and give it a remit as the leading public sector investment vehicle under competent and professional management, free from day-to-day political interference and reporting to parliament annually.
The minister’s decision to offer some low-income people an energy grant is an attempt to avoid confronting the Canadian-owned Barbados Light and Power.
Apart from questioning the suspect investment decision by the National Insurance Scheme to sell out its shareholding at such a crucial time, it once again brings in to question the urgent need for a prices and incomes commission.
The point is that price increases for the delivery of electricity is not in the government’s hand and some unscrupulous owners, not necessarily this one, may see government’s funding of the low-income households as a way to maximise their profits. The provision of electricity to residential premises is a service, along with water, refuse collection and basic banking which should come under special legislation.
A major part of the farce of the Budget Speech is the reference to a new economy, which he has not clearly defined.
He acknowledges that it could range from “…a downsizing of government and a shift towards more private enterprise intervention, to propositions for whole new economic sectors to be created within the country.” He concludes: “If there is but one common denominator running through all of these suggestions it must be the reality of the need for a paradigm shift in traditional notions of economic capital formation, management and distribution.”
So government has set itself the task of expanding the economy with the intension of growing GDP over the next twenty years or four parliamentary sessions; creating new employment opportunities; and shifting the over-reliance on advanced economies and linking more with the leading emerging economies, specifically India, Brazil and China.
Again the red flags must fly here. This is a very narrow-sight interpretation of the south-south dynamic in global trading. For example, at the turn of the century, the global economy was valued at US$32 trillion, now with the recession and banking crisis behind us, it is now valued at $64.7trn and by 2030 is estimated to grow to US$308 trn.
This represents an annualised growth of 7.7 per cent between 2000 and 2030, or 8.3 per cent from 2010. These are enormous figures and nowhere in the Budget Speech, nor in any other publicly available document or speech has this government ever recognised these changes taking place, either in the short or medium term. Had they done so, the farcical tourism marketing strategy based on the UK , Europe and north America , would have never got off the drawing board.
Not only that, there would have been a clearer indication, in this speech, by the foreign affairs ministry, the prime minister, or some leading policymaker or spokesperson.
Of course, trade is one of the key driver of economic growth, and the new south-south trade corridors have opened enormous potential, by passing the old developed economies. By 2030, it is estimated that global trade will grow to US$103trillion, an increase of 33 per cent from $16 trillion in 2010, with one of the most dynamic trade routes being the China/Africa corridor.
As a small island-economy, we need to exploit this and so far we are marginalised from the fast-growing African economies, in particular South Africa, which is about to break in to the leading Emerging Market group, and Nigeria. At the very least, we should have a diplomatic presence in the continent, more progressively, a Caricom presence representing all the Caricom nations.
In the light of these enormous challenges, the minister told parliament: “In recognition of these broad objectives for economic enhancement, I will shortly propose to the Cabinet the undertaking of a strategic sectoral reform and creation initiative to be undertaken by a joint team of internal and external businesses, economic and financial practitioners to produce for government an implementable blue print to triple Barbados GDP value-added over the next fifteen years.”
The minister also reminded parliament of one of the government’s numerous financial mistakes, borrowing Bfs$90m to fund in effect to carry out a feasibility study. That is money that should have come from productivity savings and the imposition of a levy on the industry.
And, the conclusion, is that this so-called comprehensive energy-savings programme would reduce the nation’s oil bill from US$2.648bn ( for some reason the minister of finance in Barbados gives his figures in US dollars) over a twenty-year period to US$1.978bn.
A more enlightened programme would be to restrict the use of petrol in motor vehicles by introducing a tiered road tax policy, with a five-year free road tax exemption for electric vehicles or those with engines of a certain size, while at the same time increasing the tax for the bigger vehicles.
Culture Industry & Myth Making
The minister has come late to the table in terms of what I call the Rihanna dividend, the development of a dynamic and world-class cultural industry. But, true to the tradition, he has substituted public sector funding where the private sector ought to be.
The role of government is to create the regulatory, supervisory and fiscal framework for cultural enterprises to operate, with minimum red tape and bureaucratic meddling.
But there is also myth-making, when he said: “Successive governments have recognised that the creative economy ought to be one of the pillars on which our future economic growth must be premised.
“And while there have been gains – and noticeable ones – if we are to ensure that this sector is truly to be regarded as one of the mainstream economic sectors in Barbados we must address in a coherent manner some of the structural barriers confronted by the creative economy.”
Despite this rhetoric, successive governments have not done anything positive about the development of a cultural policy, far less a creative industry. Where is the industry? Where is the policy?
The success of Sir Garfield Sobers and of Rihanna has had nothing to do with an Barbados cultural policy, creative industry or even help and assistance from the public sector, if you are to ignore the Police Boys’ Club.
Sir Garry was a product of the Bayland and his natural ability, aided by his peers and siblings, and given structured release by the Police Boys’ Club. Rihanna, on the other hand, was the lucky beneficiary of a visiting American producer and entrepreneur, as I understand it, and being in the right place at the right time, coupled with her natural talent and opportunism.
To now try and capitalise on this is not only opportunistic, but reveals the government’s lack of a sound cultural policy. To suggest a cultural industries bill before having a policy in place is like having a cart before a horse.
We need, as a nation, to sit down and decide what we want to achieve culturally as a nation and work out a roadmap to get us there.
The first principle about any such policy in these tough economic times is that it must be self-financing; it must also be democratic and open to all talented Barbadians; and we must work with the necessary primary and secondary agencies to achieve these ambitions.
The two major cultural institutions must be the National Cultural Foundation, which must be managed hand-off to politicians and be required by law to report to parliament annually. It should be working closely with CBC, the schools and the sports and leisure organisations.
This is not the place to outline a cultural policy, but the funding should be, and certainly could be, a hypothecated television surcharge – the equivalent of 50 cents a night, more for commercial sets – which will go exclusively to funding the NCF, CBC, and a series of training and education programmes at the Community College (not the university).
The intended outcomes should be within five years we have a number of high-class plays, literature, drama, music, painters, sculptors, etc, who will go on to fly the flag for Barbados.
His suggestion of a public/private initiative to fund the creative industries, which will form the backbone of any new economy, is not workable nor creative enough. It is bogus. Even worse, at a time when government is increasing its spend, the minister once more resorts to what is common practice, borrowing money.
He states: “…given the diffidence of our commercial banking sector to finance enterprises in the creative economy, especially as it relates to working capital, the government of Barbados will provide by way of a government backed guarantee, a facility to provide for the borrowing of Bds$50m in amounts of $10m every year for the next five years starting in 2012 to support this mechanism.
“These resources will go directly to support the promotional, marketing and distribution efforts outside of Barbados of Barbadian musicians, artist s, designers and chefs. ..”
Where immediate resources should be going is in the education and training of good talented young men and women; the marketing, promotion and distribution of their wares come after.
More important, why borrow $50m over five years at, presumably an interest rate of 15 per cent as is the going rate, which adds a further $7.5m to the bill over the period, which could be better used funding some of the very creative projects. Surely, it would be more creative if over the same period the government were to print the money to support the industry? This is basic quantitative easing.
The minister also used the occasion to bury what is clearly bad news: the capitulation of the government to the terrible demand by the government of China that if it were to fund the national cultural and performing arts centre, which was earmarked for the site of the old Empire cinema, but will now be located in Spring Gardens, opposite Brandons beach.
Omissions: A crisis of policing
There was nothing on law and order, although ordinary Barbadians are crying out about the level of crime- which in international terms is not high, but if locals say it is high then it must be treated as such. To be frank, the problem is not the level of crime, but a crisis of policing. One only has to read the daily papers to see this – from robberies, to street violence to murders – the crime rate, despite official statistics, are spiralling out of control.
The crisis is twofold: unemployed, and often unemployable, youths, mainly boys, left to drift without any official programmes to provide them with educational, training or work opportunities.
This situation is partly caused by the individuals themselves, but more so by the failure of an education system that could allow young men and women to spend eleven years in statutory education, from the age of five, then exit illiterate and innumerate, or nearly so. Teachers are to blame.
The other major failure is that of policing, both the lack of a strategic vision, and that comes under the umbrella of the attorney general and the government, and operational shortsightedness, which is the police commissioner’s.
Policing the relatively law-abiding streets of Barbados are no worse than New York , London , Paris or any other major city. In fact, policing Barbados is not even comparable in terms of violence, theft and burglaries than the average English market town.
Yet, for a variety of reasons, successive police commissioners seem unable to come to terms with what is needed to roll back this creeping lawlessness. Nothing in the Budget seems to address this faultline running through our society.
We have shop keepers afraid of being robbed, even murdered; the elderly living in fear from violent and aggressive youths and their own drug-blighted family members.
There was nothing in the Speech about the state of the health services; the huge off balance sheet liabilities for social security and pensions; nothing about the badly needed reform of the education system; nor nothing about the chaotic public transport system.
Until now government has avoided making explicit any substantive policy proposals for dealing with the crisis facing Barbados , apart from making public consultations with the so-called Social Partners, namely the trade unions and business sectors. But neither sector has made public a prefer policy approach, fiscal austerity, monetary expansion or a combination of the two.
Suggestions of a prices and incomes commission have been dismissed by some senior economists as irrelevant to the debate and in any case unworkable. The situation had reached such a state that Sir Roy Trotman, general secretary of the Barbados Workers’ Union, was forced to complain that some employers were giving notices of redundancy, in direct contradiction with the Social Partnership agreement.
But no agreement between corporatists can expect to tell the owner of a business, especially a family-owned firm, how to manage for survival. The reality of running a business frugally in a time of deep economic austerity exposes the flaw at the very heart of the so-called Social Partnership.
The most obvious area to start any restructuring is public sector productivity, and this is exactly where the trade unions are bullying and threatening in their behaviour. Output needs to increase, and this can firstly be achieved by the normal disciplines of industrial relations: people arriving at work on time, working while there, taking legally approved breaks, and leaving work at the end of the official working day.
This can then be improved even further by the strategy introduction of technology with compatibility and functionalities right across the entire public sector, including government and statutory bodies. The productivity gains from the use of such technology can then be used for the further training and overall improvement in the delivery of services, which would mean that staff, government and the public will benefit from these improvements.
The evidence is there. Only a few weeks ago environment minister Denis Lowe claimed that workers at the National Conservation Commission seemed incapable of doing a full day’s work.
He told supervisors: “There are a lot of people in the NCC that cannot do any work. They have been rendered almost incapable of delivering work, and the list is long.”
The answer to that alleged laziness is simple: privatise the work, form the workers in to a buyout firm, offer them a three-year contract based on the current cost of getting the work done, but with a performance clause, and force them to compete for renewal of the contract at the end of the three-year period.
There is also a need for a detailed breakdown of the state of household finances, including the debt to income ratio and the savings ratio. Again, the Budget did not address this pressing problem.
For a nation that depends on its environment to attract visitors, there is no serious acknowledgement of this reality in the Budget Speech, no national debate about the state of the environment, the vanishing flora and fauna, the erosion of beaches, the continuing discharge of effluent in to the sea, over-fishing of flying, the reduction of open space and green land in to construction sights, no real protection of our wild species, and the scandalous decision by both governments to allow the use of money by the mega-rich to reinforce a nasty form of racial (the rich) housing segregation which the South African, Australians and Southern Americas would have been proud.
This is a failure of vision, of policymaking and worshipping the economic false of foreign currency reserves, a simple international trading hedging device, which has become a law unto itself.
Analysis and Conclusion: “A risk too far.”
The Budget was an enormous failure. Not just for this government, but for the people of Barbados .
This was an enormously huge missed opportunity. The Budget Speech was more rhetoric than substance. On fact, there is very little evidence, judging from the content of the Speech, that the minister fully understands the extent of the global meltdown.
No one wants to catch a falling knife and euroland is in free fall. That the ministry of finance, tourism authorities and the central bank can make assumptions based on the revival of European tourism is a risk too far.
The truth is that global growth, including the leading Emerging Markets, the so-called BRICs – Brazil , Russia , India and China – and even in Germany , the economy driving euroland, growth has slowed to a frightening level.
The background noise to this Budget is that there are $600m of outstanding income tax and VAT which the government seems not able to collect. The first step is that any business more than six months in arrears with VAT should be stopped by trading immediately.
VAT is a sales tax collected at the point of payment for goods and services; it is taxation collected by business people on behalf of the government, all the appropriate civil servants have to do is going and collect their money every week, month or quarter. Instead, hard-pressed, sometimes even dishonest business people are using taxation as cash flow for their businesses and government is incapable of doing anything about it.
Sustainability is not figures on a flow chart or excel spreadsheet. There is nothing about diversification, apart from one or two glances; nothing to suggest the minister, and through him the government, is prepared for the approaching economic high winds.
In the final analysis, Caricom has failed to develop a lender of last resort facility for those lending institutions which fell in to trouble during the crisis. In fact, Caricom is a colossal failure of ideas, will, commitment and trust. The minister in his Budget speech should have raised questions about the running costs of Caricom and the Caribbean Court of Justice and the extent of the taxpayers’ burden to keep these two monstrosities running.
The bottom line is that we are facing a level of political paralysis never before seen our in post-war history.
We have a government that inherited huge debt from the 14-year reign of the Arthur Labour government; a DLP that was just going through the motions of a general election but did not expect to win; and once it had, did not know what to do. Remarkably, this government has made things worse.
Barbadians of all walks of life must reflect on our national values and self-perceptions, on who we are and what we want to be.
As we pat ourselves on the back about our education, other neighbouring islands are catching up while others are moving further ahead. Trinidad, form example, has a sovereign wealth fund which seems to be working; both St Lucia and Antigua have progressive national investment policies, while in Barbados we cannot even bring ourselves to discuss in a civilised way the issues confronting us.
One of those, is the increase in population and its impact on economic growth; does it matter if this population increase comes from a higher reproduction rate or immigration? And how does this affect housing, health, education, job and social security policy? We also need to discuss the demographic composition of any such population growth, what it means in terms of the natural and social environment, not just for this generation, but two, three generations ahead.
Barbados is at a cross road: it can either opt to do what is right, admit it is a small island with enormous potential and do the best with its limited human and natural resources; or, it can allow inflated collective and individual egos to rein, bow to political tribalism and sleep-walk in to irreversible disaster. The choice is ours.
Hal Austin, London, August 19, 2011
PS : I have attached an Excel sheet of the US dollar/pound sterling exchange rate since 1975. See what you think.