Kamla’s faulty economic plan

THE EDITOR: It is quite interesting that the Opposition Leader, Kamla Persad-Bissessar, took the time to present the UNC’s policies, should they assume office in 2020. However, as I listened to the roll-out of these policies, a sense of unease and concern took over. It will become quite apparent for both the layman and those with training in economic analysis, that these policies lack a proper appreciation for the current economic climate, and challenges we face, risks ahead, and have the potential for a very negative impact on our economy.

Allow me to go into a brief analysis of some of the stated policies. The Opposition Leader highlighted, as a main tenant of her fiscal policy, the balancing of the budget from 2020 to 2025. Simply put, this means bringing revenue and expenditure in line. Firstly, this instils little confidence in me, as the UNC government presided over some of the highest revenues this country ever received, over $60 billion in some years, and still couldn’t balance the budget.

In these challenging times, revenue has fallen by over $10 billion less than what the UNC presided over. Revenue now stands at roughly $48 billion while expenditure is at $53 billion. An immediate balancing will entail a cut of roughly $5 billion by the UNC in 2020. Where will this come from? This is the fundamental arithmetic of the budget and an answer was lacking.

The intention to cut taxes on income, scrap property taxes, slash corporations profit taxes by almost half and reinstitute zero-rated VAT items was stated. The first point to note is the application of the widely debunked trickle-down economics theory, where the thinking is that cutting business taxes will lead to growth of businesses and the benefits will “trickle down” to the small man. In practice this had not been shown to work and has instead led to widening the gap between the rich and poor.

Secondly, this completely contradicts the stated policy of balancing the budget since a major source of income from energy and non-energy sources will be significantly reduced. In this regard the Opposition’s plan lacks a major revenue component. Few economists would argue that if we are put on a free float, with or without a band, as suggested by the Opposition Leader, given current dynamics, the impact will be an immediate depreciation of the currency. The $8 or $10 to US$1 may well become a reality. What will be the impact? Everything imported, from channa and flour in your doubles to Toyota Corollas and Tidas will increase in price. Add to this the proposed increase in import duties and we have a recipe for very volatile prices and the real possibility of galloping inflation, along with the prospect of other nations retaliating and placing duties on our manufactured exports.

The interest rate increase is the most baffling of all as it is presented as a way for the Central Bank to co-ordinate its monetary policy with government’s fiscal policy. However, tax cuts to grow the economy are part of expansionary fiscal policy while interest rate increases are seen as contractionary monetary policy. There is a clear opposing dynamic between these policies as articulated by the Opposition Leader and will have the impact of working against each other. Higher rates will increase the cost of capital, hence impact negatively the investment decisions of many firms. A strategy of cutting taxes for businesses and trying to foster investment, while increasing interest rates, is counter-productive and may serve to contract investment, as opposed to promoting it.

I have only taken a look at a few measures articulated out of the many which cause me very serious concern. The plan outlined by the Opposition appears to stand in a different reality from what currently exists and proposes solutions which does not seem to be based on sound economics.

Worse yet, when I analyse the potential impacts of some of these radical policies, it can be potentially destructive to our economy in many ways. As a citizen concerned with the best for the country and seeing that the Opposition aspires to hold the reigns of this economy once again, I urge them to reconsider these policy positions and apply a level of analysis to the potential deleterious impacts on our economy.




"Kamla’s faulty economic plan"

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