Thursday, 08 March 2012 02:30
By Colin Sampson
Antigua St John's - As he surveys an economy in what he terms “very serious trouble,” financial services professional Ronald Maginley is criticizing both major political parties for what he regards as a “failure of political leadership across the board”.
Maginley made the comments on Wednesday, during a telephone appearance on the Colin Sampson Show. Visit the Caribarena.com video archive to hear the full discussion.
While taking full account of the fallout from the depressing list of global, regional, and domestic shocks that have beset the Antigua & Barbuda economy since 2009, Maginley believes that the present situation is largely due to the government’s mismanagement of the unprecedented tax revenue it enjoyed between 2004 and 2009.
Maginley, who contested the St John's City East constituency in 2009, roundly castigated finance minister Harold Lovell for unacceptable conduct in deciding to “leapfrog” over the years 2007 to 2009 and present audited accounts for 2010.
The former FSRC gaming regulator pointed out that any private sector entity that attempted such a maneuver would immediately run afoul of regulatory agencies, not to mention its own shareholders. The action, he said, is not responsible, and goes beyond accepted norms.
Maginley noted that this unorthodox behaviour from the finance minister comes against the background of the refusal by the International Monetary Fund (IMF) to advance disbursements that would ordinarily have been due under the existing standby arrangement for each of the last four quarters.
In Maginley’s view, the IMF’s stance indicates a failure by Antigua & Barbuda to meet the qualification criteria laid down. However, the finance minister has offered no explanation. Yet, the nation has a right to a clear understanding of the reasons why the IMF has effectively suspended the $300M standby arrangement.
Attributing the “leapfrog” decision to pure political expediency, Maginley posited that the approach denies the government the opportunity to identify positive or negative trends in government revenues and expenditures. This means, he observed, that the government is becoming more and more opaque in its conduct.
How, Maginley asked, can the government reasonably expect to seek more taxes from the populace without explaining what it has done with the vast sums already secured since 2004?
Maintaining that the public sector in its current form is an unsustainable entity, Maginley predicted that a day of reckoning must certainly come. He harked back to a consultation on fiscal policy held at the Multi-Purpose Exhibition Centre in 2005, at which then-finance minister Dr Errol Cort suggested that increased government spending should substitute for shortfalls in private sector investment.
The result, Maginley said, has been years of “tax and spend” policy, culminating in a deficit of $600M in 2009. Noting that the country has little to show from the unprecedented levels of expenditure, the finance professional regarded this as an indication that government spending tends to inflate, rather than grow, the economy.
Maginley sees no merit in the assertion that a low tax-to-GDP ratio is positively correlated with a high debt-to-GDP ratio, resulting in economic inefficiency. He pointed, instead, to the Japanese experience. There, in the face of low consumer spending, government attempts to boost the economy via unproductive spending in infrastructure produced “stagflation” rather than economic growth.
This state of stagflation, Maginley said, is precisely the position in which the Antigua & Barbuda economy now finds itself.
To Maginley, the bottom line issue is that consumer spending is down, reflecting lower earnings and reduced consumer confidence. Further, government spending in relatively unproductive areas will do little to boost economic activity. More taxation will serve only to further reduce consumer confidence and spending. Borrowing to finance recurrent expenditure (ie an IMF standby arrangement) is not the answer.
Maginley sees support for his analysis in the report by revenue reform manager Everett Christian that, even though ABST compliance has increased from 40% to 90%, the actual yield is not higher. This indicates a trend towards more businesses paying in less revenue: a sure sign of weakness in the economy.
In this connection Maginley notes that government’s revenue projections for 2012 allow for a 13% increase over 2011. Whether or not this can be achieved in a slow economy and weak domestic demand remains to be seen.
The former FSRC gaming regulator attributed low levels of foreign direct investment to an environment that is relatively unfriendly toward business, and where rates of return are low, as compared to returns from safer investments elsewhere. He identified the need for Antigua & Barbuda to update its regulatory structure to bring it in line with a changing world economic environment as key to future success in attracting foreign investment.
Stressing that generic solutions will not work in the current context, the former political activist is calling for meaningful bi-partisan discussions aimed at identifying solutions other than taxation to our current economic malaise. The economy, Maginley reminded his listeners, is everyone’s problem: and Antigua & Barbuda is virtually a failed state.
The former candidate warned his own Antigua Labour Party that winning power through a “protest vote” will not serve the country’s needs. In these serious times, the nation needs serious people who understand how the economy works, and how the world of business and investment works. He challenged the ALP to deliver a set of solutions, rather than a list of complaints.