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T&T economy needs less govt

Thursday, August 17, 2017

As a country, T&T has lived off the fat of government-fund­ed subsidies for much of our post-independence history.

As well intentioned as many of these subsidies are, most are plainly unsustainable and underlie a fundamental disease in how T&T’s economy operates: the size of government as an eco­nomic agent is simply too large in this country.

In most small states like T&T the role of the government in economic affairs cannot be completely removed; that’s a given.

That said, the reality is that few citizens recognise the magnitude of this problem and, perhaps if called upon to do so, may be un­willing to make the necessary sacrifices that will ultimately be required to rebalance what is currently a lob-sided, highly combustible economic situation.

Beyond the dependency mindset they have created, the level of transfers and subsidies that exist today is an absolute form of state-spon­sored capital destruction.

Subsidies in T&T have effectively morphed into entitlements whereby many citizens miss the fact that the State is actually being, for want of a better term, “generous” to them.

Subsidies are gifts not obligations and, as a country, many confuse the two.

To drive this point home, a look at some numbers helps tell this alarming story.

According to data from the Central Bank, between 2003 and 2014, government transfers and subsidies grew from $4.1 billion in 2003, to $35.3 billion in 2014.

Put differently, in that 11-year period, the level of subsidies and transfers handed out by the two administrations in office during that time grew by over 700 per cent.

Here’s another statistic that shows the extent of this ruination of capital.

In that same time period, roughly $197 billion was spent on transfers and subsidies—that’s billion with a “b”.

This figure represents a massive transfer of wealth from the State to the citizenry.

But the question that all should ponder is whether as a society, we are collectively $197 billion better off today?

Of course, some will argue that money used to subsidise healthcare and education can be seen as worthwhile spending.

Well, it would only be worthwhile if more of our educated labour force remained in T&T and if the government didn’t then have to create another subsidised entity—the On-The-Job Training programme—to employ those who couldn’t otherwise be absorbed into the la­bour force.

But the subsidy rabbit hole goes deeper.

In the 11-year period under consideration, subsidies grew from roughly 25 per cent of total government expenditure to over 50 per cent.

So, in effect, larger and larger amounts of fiscal expenditure went to support activities from which any discernible, measurable re­turns can be hotly debated.

The interesting thing about subsidies as well, is that those who they are supposed to assist benefit way less than those who are unintended recipients.

The affluent in society benefit dispropor­tionately from subsidised fuel, education, electricity and even airfare.

It is patently unfair that a wealthy individual can “free-ride” on services provided carte-blanche by the government when he or she has the ability to pay and should be made to do so.

Looking at the public sector more specifical­ly, transfers and subsidies have kept inefficient state enterprises around for much longer than they should.

In essence, “free money” handed over by the government reduces the incentive of these enterprises to cut costs and manage their re­sources with the type of alacrity displayed in the private sector.

In fact, the most efficient state enterprises receive little to no subsidy from the government and are highly profitable, yet those that get billions of dollars in transfers and subsidies are perennial loss-makers.

Certainly not all would have been creat­ed with the “profit motive” in mind but, at some point, the decision must be made to stop throwing good money after bad.

So, where do we go from here?

Broadly speaking, it is in the interest of all tax-paying citizens to have subsidies and transfers be continually reduced and the size of the government as an economic agent in lockstep with that reduction as well.

Though some pain and adjustment will be involved, it is to the nation’s benefit to have a smaller government.

As a country, we will never become truly competitive, outside of the energy sector, if the government continues to skew economic activity and the many associated markets in the way it does by having such a large fiscal footprint.

Yes, there will always be those in society who will need a helping hand, and the State should definitely be ready to assist those in the appropriate way.

However, those who are given said assis­tance should be encouraged, if not coerced, into not making dependence on government their way of life.

The hardest challenge in making these changes is likely to be political and, sadly, what’s good for the country and what’s good for the politician don’t always align.


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