The Grenville Phillips Column – Heed the IMF’s Warning
On 4 October 2018, the International Monetary Fund (IMF) published their report on the Government’s austerity program. Despite the current administration’s claims of being more transparent that the previous one, reading these IMF reports suggests that they are similarly non-transparent. Speaking more often does not equate to transparency.
The IMF report provides significantly more detail than what is reported locally. The report confirms that that the severe austerity was designed by the current administration, and that the Government is accountable to the IMF for implementing the measures. An analysis of the report follows.
To reduce Government spending, the Government must: provide less money to Government services managed by boards and Chief Executive Officers, increase taxes on the tourism sector, increase personal income tax rates, and increase corporate income tax rates.
If less money is going to Government services like water, public transportation, garbage collection, the Queen Elizabeth Hospital, the Airport, etc, then normally we would expect one of two outcomes. We would either expect worse service because of the reduced resources provided, or we would expect to be forced to over-pay for the services that we have already paid for with our taxes, by paying user-fees. Unfortunately, we in Barbados can expect both outcomes.
The IMF report notes that the Government’s plan includes a reduction in the wage bill and an increase in user fees for these Government services. We have already been charged additional amounts for water, garbage collection, health, and airline travel. Additional user fees, and the laying off of staff providing these services, can be expected.
Laid-off workers would feel justifiably angry with the continued mismanagement of Government services and the under-representation by their ‘all-aboard’ union representatives. To demand that the public ‘double-pay’ for government services, and then still send home workers, appears to signal that the real problems of substandard management, wastage, and gross corruption will continue to be ignored.
Both administrations have rejected the proven international management standard, ISO 9001, in favour of their failed public sector reform efforts. We can expect the usual partisan yardfowls to continue to ridicule this international standard that has greatly benefited the public services of other nations.
The IMF notes that divestment is also part of the plan. Other than gross incompetence, selling public services cheaply to politically-favoured entities is the only logical explanation for rejecting an international quality management standard. Poorly managed public services are worth significantly less than well-managed services. Politically partisan media persons who continue to ridicule the ISO 9001 standard are doing Barbados a grave disservice.
Increased personal income tax rates normally result in families having less money to spend after paying their monthly expenses. However, in Barbados, where the increased income tax is coupled with us significantly over-paying for public services, there will be no disposal income left. We can expect most persons’ personal savings to be exhausted.
Increased corporate tax rates may result in some increases in products if businesses want to maintain their profits, or no increases if businesses are willing to accept reduced profits in this challenging economic environment. Given that the private sector representatives were irresponsibly promoting an austerity-only solution, we can expect an increase in the cost of products, since those who promote austerity normally do so for others, not themselves.
The IMF report also noted that the plan included measures to address the slow processes for obtaining town planning approval. That this was included in the severe austerity plan demonstrates the inordinate influence of developers who appear to have been misled by their agents. So, we must all suffer while the Government tries to correct the wrong problem.
Many development applications are simply substandard, requiring multiple resubmissions to the Town Planning department. Agents normally deflect blame from their substandard work by unfairly blaming the Town Planning department for the delays. Weakening an already ineffective building standard regulatory environment, to get applications approved faster, is dangerously irresponsible.
The IMF ‘s report appears to give only one warning: “It is important to continue good faith negotiations with domestic and external creditors.” When countries are challenged to honour debt contracts backed by the Government, there are normally two options. The first is to negotiate repayment terms with creditors, which is the way of democracies. The other is to pass laws to make not paying legal, which is the way of dictators. The Government needs to reconsider the Debt Holder Bill and heed the IMF’s warning.