AT the beginning of his wind-up to the 2020 budget debate, in which the budget statement outlined the measures for fiscal 2021, the Minister of Finance boldly outlined what he indicated were the ideological foundations of his budget statement.
Referring to British economist John Maynard Keynes, he spoke of demand side economics which he said had partially influenced thinking about the budget hence the inclusion of stimuli to build up aggregate demand such as tax breaks for earnings under $72,000.
He referred to supply-side economics as captured in the Reganomics of the 1980s which argued the case for tax cuts for businesses and the wealthy so that trickle-down to the rest of society would occur. He pointed to the fact that he had imposed no additional taxes on business and probably saw the deregulation of gas station ownership as part of that.
He did not mention any influential economist on the supply side, perhaps because supply-side economics has been largely discredited and found to be flawed in its most basic assumptions.
The Minister of Finance mentioned Adam Smith, the Scottish theologian, and his concept of enlightened self-interest as espoused in his classic, The Wealth of Nations. Perhaps the minister saw Smith’s influence in the five-year tax break for agriculture and the emphasis on the manufacturing sector, on which the minister had indicated in a speech to the Trinidad and Tobago Manufacturers’ Association (TTMA), earlier that week, that he had pegged his hat. He probably saw in these policies the possibility of investment action, greater entrepreneurial energy and increased trade.
In an article published in this newspaper several weeks before presentation of the budget, I had raised the issue of lack of ideological clarity in Government policy generally, and pointed to the futility of the false choice between austerity and prosperity. In the debate, some on the Government side acclaimed the budget as a prosperity budget, while a few on the Opposition bench described it as an austerity budget.
I had also mentioned how trickle-down as well as a misunderstanding of the sharing of the burden concept, could be ill-advised. I also warned that Joseph Schumpeter’s “creative destruction” concept was inappropriate in a pandemic that has triggered massive business collapse and argued that a well-thought-out strategy would recognise that the market was merely a mechanism, not a philosophy, and that any civilised society would demand social welfare support in the face of glaring inequality, sudden and increased economic hardship, and distress.
Because whatever the trauma and the level of uncertainty staring us in the face, we must not lose sight of hard choices before us, and the path that we must walk to make it possible to live in dignity and peace. So we have to think our way through. We have to survive, as individuals, families, businesses, institutions. Each individual who is out of a job, makes the family to which she/he belongs more vulnerable. Each weakened institution, destabilises the social fabric further and undermines resilience. Collapse of small and medium businesses means not only loss of jobs, but also distressed families who have lost their life’s work, with possible negative impacts on a financial institution.
The Government has to help these entities mentioned above to recoup, take steps to retrieve what they can to get to the point of commercial revitalisation on which job restoration depends, without which recovery is impossible, growth unlikely and any hope of new investment and new job creation unrealistic.
Unless we see action focused on objectives and results, therefore, we have no way of knowing whether ideological clarity does exist in the Government or in its 2021 budget.
Already we are seeing contradictions between the publicly articulated budget intentions and the policy pronouncements being made.
Let s take property tax. I am not opposed to property tax if it is fairly administered, not prone to arbitrariness or political interference, and if there is an independent tribunal to address citizens’ complaints or appeals for justice.
But how can you impose a property tax in fiscal 2021, when many home owners are out of work, wrestling with financial institutions about their mortgages, and the level of lockdown in the economy, remain unsupportive of recoup and retrieval of businesses? In this Covid-19 period, property tax should be delayed for both citizens and businesses.
Citizens and businesses need to be propped up by Government intervention in 2020 and, at the same time, you want to tax them this year for property? Where is the logic?
Let’s take the minister’s statements about the need for higher water rates. A reasonable citizen would be willing to pay more providing he/she had income, and is receiving a predictable supply of water. But how can anyone justify an increase in rates when homes are without water for days and weeks, leakages account for a 50-per cent loss of water in the distribution system, and matters of water capture, retention and more reliable distribution are at the very best, at a planning stage. How can anyone justify increased rates now for water that you are not receiving?
If businesses receive a regular and predictable supply of water then, it may be reasonable to start there. We will only know the value of this budget when it is aligned with results and we are able to make an assessment in ten months.
Meanwhile, the Government should spare us the policy contradictions that undermine any good intentions it may have. That spells defeat before you start. Ideological clarity should give you policy precision. Even so, you are not sure what will work because so many variables are outside your direct control in this Covid-19 nightmare.
Take action on the priorities that save foreign exchange, win foreign exchange and create jobs and incomes. You can’t go wrong with these; and, who knows, other things may fall into place.