NSRL – the last straw MBA/MBM
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DURING SEPTEMBER, Barbadians escaped the fury of the weather systems, for the most part, but encountered the force of the National Social Responsibility Levy (NSRL). The cost of living skyrocketed as the winds from the levy increased five-fold from two to ten per cent. However, Minister of Finance Christopher Sinckler and the Prime Minister were doing their best to spin the hell out of the levy.
Notwithstanding the underperformance of the revenue from the levy, the insensitive Freundel Stuart administration is now busy trying to put the best political face on a very poor tax policy. The insensitivity comes in the form of the Minister of Finance’s boast of the amount collected in the three-month period. He speaks as if the revenue came from a newly-planted tree and not the pockets of suffering Barbadians.
The ill-conceived NSRL is being used as a political ploy. The significant rise in the cost of living caused by it is being blamed on price-gouging by the businesses. The underperformance is being promoted as overperformance to justify granting an increase in pay, in whatever form, to public servants ahead of the upcoming event. By now, Barbadians are seeing through the ignorance.
The spinning of the levy’s performance was accompanied by a new kind of economics. Mr Sinckler suggested that the increasing tax collection would help to grow the economy. This is consistent with a thinking that says the best way to grow the Barbados economy is to restrict consumption and increase production.
As far back as 1776, in his classic book The Wealth Of Nations, the father of economics, Adam Smith, argued that “consumption is the sole end and purpose of production”. One of the most popular modern macroeconomics textbooks, written by N. Gregory Mankiw, uses the quotation above to introduce the chapter on consumption.
To increase production in any economy, it is necessary to know that what is being produced will be consumed. Therefore, investors begin the process of production, having carried out the necessary work to determine that consumers are willing to buy their new products. It is self-evident that production that is not consumed is useless.
The danger with the NSRL is that it damages both production and consumption. This is highly unfortunate and simply reflects the ignorance of the Stuart administration with respect to tax policy.
In this year’s Budget, the Minister of Finance said: “Following some early implementation challenges, we are satisfied that the administration of the National Social Responsibility Levy has settled down and, based on net collections over the first four months of the year, is set to come close to, if not achieve, the targets which we had originally set.”
As a result of the two per cent levy in 2016, the Government was expecting to raise $82.9 million for the seven-month period from September 2016 to