Rethinking the modern welfare state in The Bahamas...

Rethinking the modern welfare state by whatever name

thenassauguardian editorial


Bahamians should monitor closely the economic events in Europe and the United States. Several European countries such as Spain, Portugal and Italy are having trouble managing their debts. Other European economies such as Ireland and Greece have already been bailed out; but may still need additional help again soon.

There are fears that a European debt crisis could emerge creating conditions similar to the financial crisis of 2008, which led to the most significant recession since the Great Depression.

As Europe tries to fix itself, and there is no easy solution, a bitter debate in the United States over debt and spending rages. The U.S. has a debt to GDP ratio of around 100 percent that is growing. Conservatives want to see deep cuts to entitlement spending. Liberals want to maintain the social programs they think support a just society

The U.S. and Western European countries had high levels of debt before the financial crisis. The amount of money states used to support their economies after the crisis, however, significantly increased those debt levels. Now, tough decisions have to be made. The old levels of spending can no longer be supported. If they are maintained, collapse will eventually be the result.

The problem is that in modern states people have come to believe that they have the right to every benefit under the sun. Many think they should have free health care, free education, unemployment benefits, pensions, etc. In previous good times when these things could be afforded, politicians kept piling on benefits and giving subsidies to appease voters and financiers.

The time has now come in the Western World to roll back these ‘gifts’ and rethink the role of government.

In truth, people do not have the right to any benefit or gift from the state. The whole idea of rights is too based on religious thinking and assumptions on what ought to be bestowed to humans by a mysterious divine source.

Countries, communities and social groups can only provide the level of entitlements that can be afforded. Governments can and ought to act as back stops for the downtrodden if they can afford to so do, and not otherwise. So, if you live in oil rich Norway, then the sky is the limit. That state can afford to spoil its citizens.

When you live in a developing society with a debt to GDP ratio approaching 100 percent, there is little the state can do for you.

Government should function first and foremost as a regulator. Its job should be to ensure that fair and open marketplaces exist, through which citizens can make a living. Government should also work to ensure the safety of the common area from internal and external threats.

Beyond this, all the other benefits a state could offer should be based on the resources at its disposal, after consultation with the people.

Under this mindset, it becomes easy for a country to make decisions as to the cuts necessary for growth in the economy to return. Wasteful programs and subsidies, to the poor, as well as to the rich, must be cut across the board in the West in order for taxes to be reduced and for the private sector to have more space to expand. Unnecessary and onerous regulations also need to be removed, creating a more favorable atmosphere for entrepreneurs to take risks.

Here in The Bahamas we are burdened by more and more regulations and by a large and inefficient public service. Our solution, it seems, to the down times is to continue to impose more regulations and to pay the public sector come what may and to borrow and borrow to so do. We cannot keep this up forever.

It is obvious what needs to be done. But it will not be done until people here abandon the idea that a welfare state, by what ever name, is the answer.

Aug 10, 2011

thenassauguardian editorial

Caribbean Blog International

Bahamas government fiscally irresponsible

By The Nassau Institute:

The Tribune Business recently featured Mr Zhivago Laing’s position on the Moody’s Investor Services Report on the debt level of The Bahamas.

Many of Mr Laing’s comments are correct and perhaps the Government may now be thinking about taking corrective action to reduce the country’s debt load.

It may be too little and too late.

Unfortunately, the focus is on increasing taxation and not reducing government spending. Year over year deficits reflect a policy of spending more than the country’s income can support.

The private sector is limited to spending more than it earns for only a short time before bankers and owners become uneasy and force changes. Raising prices, like government is proposing in the form of increased taxes, is not the answer in a competitive market, particularly as the Bahamian product long ago reached a non-competitive price level with other countries offering the same or similar products.

Raising taxes is economically damaging and a shortsighted policy without seriously pursuing drastic cuts in spending.

Some areas to cut government spending

Cut spending, waste and corruption in government like you mean it before considering increased taxation. Beside the many recommendations at www.nassauinstitute.org over the years, here are few quick ideas that will help reduce spending:

1. Combine several of the Government Ministries. Do we really need more than 20 Cabinet Ministers at this time? Reducing the number of Cabinet posts will also reduce the number of chauffeur driven cars and their attendant costs etc.
   
   


2. Immediately cut all travel. Is it really necessary to go to all the symposiums around the world with entourages that stay in the finest hotels etc? Many private sector meetings and training are now held over the Internet. Is the government immune to using the new technology?
   
   


3. How about selling off some of those embassy buildings around the world? Are they really required?
   
   


4. Turn the tap off on the waste at Bahamas Air and other drains on the public purse.

With a debt to GDP ratio, including contingent liabilities at or near 54%, Mr. Laing, and by extension Parliament, seem more focused on expanding the tax base rather than cutting government spending. Every Member of Parliament knows that the government has not been fiscally responsible, but all of them, to a man, only see one way to fix their insatiable appetite for spending – Stick it to the taxpayer. And history shows us that even with more revenue, government deficits continue unabated.

The business community and private citizens have taken this recession on the nose all the while the government has continued increasing spending and borrowing when many business people and individuals have been cut off.

Limit tax and debt levels

Tax increases should be the last resort, and only after the bitter medicine of reducing the size and scope of government and its rapacious taxing and spending have been brought under control.

If at the end of the day there is no other way to get out of this mess than to raise taxes, a Constitutional amendment or at minimum a law should limit government debt levels to no more than 40% of GDP incorporating a limit on the total level of taxation.

These are tough times for every Bahamian, but increasing the tax burden will slow the economy even more. Something the government should studiously avoid.

The Nassau Institute is an independent, a-political, non-profit institute that promotes economic growth in a free market economy with limited government, in a society that embraces the rule of law and the right to private property.


April 5, 2010


caribbeannetnews

Bahamas Blog International

The Bahamas Government Ongoing Deficit Spending - Budget after Budget

The Bahamas Minister of State for Finance, James Smith on reducing the budget deficit: “What we must bear in mind in trying to reach deficit reduction targets is that it is not a one year exercise

Gov’t Facing Growing Deficit

By Candia Dames

candiadames@hotmail.com

Nassau, The Bahamas

06/05/2004

As the fiscal year winds to a close, government officials are working feverishly to bring a new budget to parliament at the end of this month.

It is too soon to tell whether the government will meet its revenue projection of $1.005 billion, but collections are expected to exceed the more than the $900 million collected in the 2002-2003 fiscal year, according to Minister of State for Finance James Smith.

“The deficit is likely to be a little larger than expected,” he told the Journal recently.

The 2003-2004 budget projects an overall funding shortfall of $122 million, which would raise government debt by 2.2 percent to 38.7 percent of GDP.

But Minister Smith has indicated that more than $30 million in unexpected expenditure will increase the deficit, unless the projected revenue is dramatically surpassed.

“As usual and without fail, you have the unexpected events that tend to throw it out of whack,” he said.  “Sometimes it’s favorable, most times it isn’t.  So the challenge is always there.”

The Minister added though that, “What we must bear in mind in trying to reach deficit reduction targets is that it is not a one year exercise.

“We try to do that over several years – three or four years as the case may be – because you really don’t want to choke real development.  If we have a run over the year over the projections that means that in framing the budget for the upcoming year, we take that into account and we might have to introduce revenue measures or additional expenditure controls or a combination of both.”

Prime Minister Perry Christie said Sunday while on the Radio Love 97 Programme “Jones and Company” that the government is “severely challenged” by the increasing expenditure and revenue collections.

But he reported that there were signs of improvements.

“We are very happy that we have now seen the beginnings of the turnaround in revenue,” Mr. Christie said.  “The last three months would suggest that the turnaround is setting in and that is headed toward obviously a better situation.  But even with that, we are going to be severely challenged given the kinds of developments that are taking place on our islands.”

On Wednesday, Minister Smith was unable to reveal specifics regarding collections.

The government is into its final weeks of preparing a new budget, facing a traditional rigidity in expenditure.

Minister Smith has pointed to the difficulties in preparing a budget when such a large portion of expenditure is fixed.  It is a situation he said is not easy to restructure.

“I think it’s going to be very difficult because 55 percent or thereabouts are salaries and wages and it’s a very difficult political decision to reduce the size of the public service, so you almost take the wages and salaries as a given,” he noted.

“Added to that would be another fixture of the budget, debt servicing, and that’s about another 18 percent of your budget.  So already you’re talking about 75 percent of your budget that’s fixed.  No matter how hard you try, unless we were to have some dramatic structural change in the economy, I don’t see that happening.  I know of it happening in no economy in the world, really.”

One way of beginning the reversal of this trend is making conditions conducive to the growth of the private sector, he said.

“If you create the jobs in the private sector then there is likely to be a drain from the public sector into the private sector,” Minister Smith pointed out.

The Bahamas Government to Rescue Bahamas International Securities Exchange (BISX)

Gov't To Rescue BISX Again

By Candia Dames

candiadames@hotmail.com

03/02/2004

The Cabinet plans to rescue the Bahamas International Securities Exchange (BISX) if its shareholders agree to match the $450,000 the government intends to provide it through the Central Bank, the Journal has learnt.

 

This financial shot in the arm would come nearly two years after BISX asked for $2 million in public funds.

 

A committee that was appointed to look into the affairs of BISX recently recommended that the Government of The Bahamas through the Central Bank "commit to continue its financial support of BISX for an additional amount of $450,000 over the next three years."

 

It also recommended "it be proposed to the existing and prospective shareholders of BISX that an additional minimum amount of $450,000 to match the government's support be subscribed for by way of a rights offering."

 

Minister of State for Finance James Smith said Monday that Committee Chairman Julian Francis "was told to go back and speak with the private owners [of BISX] and see if they are in accord with the recommendations [of his committee]."

 

A Bahama Journal source close to the matter said Monday that "the switch has already been flicked and things are beginning to happen for BISX."

 

Recognizing the great need for an institution like BISX to the country's developing economy, the committee, recommended late last year that the exchange receive help.  This would not be the first time that BISX would be receiving financial assistance from a government-related agency.

 

In 2002, the Central Bank gave BISX $150,000.

 

Start-up costs and losses experienced during the first two years of operations resulted in BISX approaching the government in mid 2001 to provide substantial financial assistance to support the continued functioning of the exchange.

 

When the government announces the decision to help BISX, it will surely be met by some criticism from members of the private sector, some of whom argue that the government should not be in the business of bailing out private companies.  Even an official in the Ministry of Finance seems to share this view.

 

In observations presented to the Minister shortly after the latest report on BISX was released, she wrote, "The recommendation for a further $450,000 of government financial support is divergent to the mandate of BISX being capable of operating without government subvention.  It is hoped that with the restructuring of BISX along with the implementation of the other aforementioned recommendations that BISX would become a more efficient, fully operational exchange that requires no government subvention."

 

The BISX report indicated that the existing shareholders in BISX are unwilling to inject any new capital in the exchange.  But it said that existing shareholders and new shareholders might be willing to support the exchange if certain changes were implemented.

 

An earlier Journal story on the committee's findings revealed that lavish spending on items such as furnishings compounded the exchange's financial problems.

 

The report also pointed to a number of reasons why BISX faced financial troubles, including the exchange's cost structure, significant cost overruns on management consultancy fees and the lack of anticipated public policy support.