ECONOMIC LITERACY - Involved Conversations!!!

“Economic Literacy – Involved Conversations” seeks to examine some of the realities, root causes, dangers, and some solutions to economic illiteracy in Barbados in 2023. Among the primary reasons for this paper, is the need for more to be said, publicly (in an informed manner) on the value of the economic conversations and decisions being made, at the individual, business and governmental level, and the repercussions on society, as we emerge from the rigours of the COVID-19 pandemic, and struggle to settle into a new and more importantly, a more progressive norm. It is therefore with great appreciation as practicing professional consultants, and as Barbadians, that we address the issue of “Economic Literacy – Involved Conversations.”

It is frequently (and we suspect will remain this way for the foreseeable future) easier for many to give general, and at times, uninformed criticism, rather than to give credit when, and to whom such is due. To this end, we take this opportunity, to give credit to the present and prior Governments of Barbados, for providing (as debatable as it may have or may be at times) a climate that has, and continues to provide and encourage, local, regional, and international exposure, assistance, dialogue, investment, and financing to Barbados and Barbadian businesses.

While the above has been said with genuine appreciation, we, as a nation, must learn to adapt, and quickly to the realities of the day. Not simply adapting because other countries are doing so (and they are), but rather with great understanding and synchronicity of purpose and competence. A purpose centred upon intelligent understanding of matters at hand, on a local, regional, and international level, where efficiency and competitiveness are at the core of governmental and ministerial discussions, decisions, comments, and assurances made. A purpose where efficiency and competitiveness are encouraged to be followed in likeness at the corporate, business, and the individual level, and in the necessary manner regulated.

However, for the above to occur, we as a nation, must first become mature enough to accept justified, informed criticism, and responsibility, - at the governmental (Prime Minister, Minister, ministry and quazi-agencies included), business and the individual level - for us to unlearn, then relearn for the purpose of being progressive and competitive, for us to grow as a nation.

There is no denying that much economic disruption has resulted from COVID-19, and many in society (some more than others) are continuing to feel it s effects. We make the distinction of economic rather than financial, since economic is much wider and far reaching. When we speak of economic disruption, we refer to the sudden and drastic shift in the operation of the engine of the economy. These include, but aren’t limited to, the level of local and global supply and demand of goods and services, the performance of the labour sector, business cycles, the changes in human behaviour, crime and the accompanying social spill-offs, health systems, the operation of the financial sector, etc, while financial disruption focuses on financial systems: banking, stock markets, loans, investments, savings and spending habits, as examples.

As a result, meeting day-to-day, weekly, and monthly commitments (if not before) has become a mental and financial drain (and if before), amplified even more so for many. Given these realities, revenue and expenditure (and specifically the understanding of the aforementioned) at the government, business and individual level, are of paramount importance now more than ever.

Given these opening remarks, we believe that a conversation on “Economic Literacy”, and more importantly, how to address it is critical for Barbados at this time. As we head into a watershed moment in our history, with particular reference to the management of public finances, longevity of social security, and the perceived single source solution of raising taxes, each decision made on behalf of the citizens as a “democratic” nation, requires critical and practical thinking (prior to any doing) at its source, based on informed conversations among stakeholders, backed in its effective execution by all concerned, more than ever. We will take this opportunity to point out that while such practical thinking and doing is expected by the GOB of the day, who are, exercising a social contract on behalf of all Barbadians (and not a selected few), to act in the best economic and social interest of the aforementioned, the same practical thinking and doing is also in the best interest of all, when exercised by Barbadians and business owners.

However, before we delve into this article, we believe, a clear understanding of the term economic literacy is important for participating with the content that follows. Therefore, we provide a working definition of economic literacy as, the comprehensive understandings of the components of an economy, and how they work in symphony. The skills needed are the ability to effectively locate, evaluate, and use information, resources, and services and to make informed decisions about financial obligations. Among the most critical are, active and passive income streams, budgeting, investments, insurance, understanding credit and debt, taxes, inflation, and planning for the future, to name a few.

The preceding definition is important, as there are many benefits to be gained, when an understanding of such becomes the foundation upon which topics discussed and comments made (in private, public and on behalf of any democratic nation) are done with a sense of informed insight by all participating. What we have stated here are by no means an exhausted demonstration of the importance, but offer practical insight into why it is important.

This is not to ignore the reality that people nevertheless like to talk about economic issues, especially those that affect them (directly and otherwise) as workers, consumers, business owners, politicians, etc, as they experience throughout their lifetime. This can be witnessed on social media, local call-in-radio and television programs. The comments made by many participants often make very clear, the noticeable gaps in knowledge and understanding as they speak passionately about the topics of the day, on how and what they think should change, often negligent of how changing this “one thing”, can, and in all likelihood, will affect planning and timelines, budgets, the ability to borrow, taxation, repayments and other commitments.

It has been said in a boastful manner quite often, by many a Barbadian Prime Minister, that Barbadians are one of the most educated people, and Barbados is similarly one of the most developed islands within the Caribbean. While this is not the subject matter of this paper, and we are not here to challenge this position, we think it a default goal of a democratic nation, and, especially as a new republic, to be able to boast factually (if boasting must be done), of having an economically informed population, which is a component of the education and development, which we speak of so highly. What we will say here however, is that the perceived current metrics (including emotional) for development, and bragging, as a nation, should be revisited.

We defend this position given the fact that as a nation of no real economic natural resources, our human resources (intelligence and ability) are our real economic capital. As such, understanding the fundamentals of inescapably important components, such as the inner workings of a personal and the national economy, is critically important to all.

Casually driving around much of Barbados, an observer would be forgiven, when he or she arrives at the conclusion that a considerable number of Barbadians live beyond well. Observing the number of modern vehicles, large houses, dining and other social habits, it would be understandable. We would never neglect the very real reality that they are indeed several rather wealthy persons visiting and living in Barbados, and we welcome them, however, such persons are in the minority when the near 300,000 person population of Barbados is considered. Such persons quite often have asset structures which act as a buffer, designed to negate situations such as inflation and the increase in taxes. One should therefore not look towards selective living as an indicator of the medium standard of living in Barbados, or the performance of the economy. However, what many Barbadians do have, is access to money, many in the form of credit. We are also by no means making the case that credit is bad, however, the purpose of credit and how it is managed makes all the difference. We pray that reasonable minds would agree, that, there are significant financial and economic differences at play between having your own money, and that of being dependent on borrowed money. A similar comparison can be viewed when taking foreign reserves into account. Earned foreign reserves and borrowed foreign reserves carry significantly different economic positions, and consequences.

With full recognition of the preceding realities and others in our society currently, reasonable minds would agree, that one immediate benefit for a nation having a more economically literate population, is that this would serve to improve the public's ability to comprehend and evaluate critical issues, which affect them negatively now, and if not corrected, into their future and that of future generations.

Economic literacy therefore serves as a viable platform for communication between participants in an economy, with accompaning adjustable language and examples as situationally needed.

As a result of the preceding, what also remains concerning is the more essential question of: How can we improve economic literacy in our society? Answering that question naturally turns the focus to economic education.

As obvious as the following may sound to reasonable minds, we see no harm in stating what seemingly isn’t obvious to all. The progression from childhood to being an adult, centers on responsibility of self. Therefore, one of the hallmarks of adulthood is being responsible for your own well-being, economic and otherwise. The preceding statement should not be interpreted, or carries no negative connotation, towards those in society who are responsible and seek to better self through honest and unentitled effort, but nevertheless need assistance occasionally along the way. However, many in this nation have been taught (in the name of being your brothers’ keeper) that their well-being is the responsibility of others, and more concerningly, the responsibility of persons, who are already being responsible for their own self. Neither are we speaking of those who through a physical or mental situation has resulted in them being dependent on family, organizations, and, or the state. We speak of those who are able bodied but choose to be lazy minded and the entitled members of society. Shamefully, we as a society allow, and we dare say encourage, such approaches to life, often backed by the go-too “cah-dear” approach.

As a result of these facts, many persons who are no drain of or strain on the state, are being meaningfully kept back in life, by way of misaligned government policies (when juxtaposed to what is said in a campaign cycle and not translated into policy) fueled by exorbitant taxation primarily. It is also not in good moral or educated taste, to take the position, that because persons can, and do pay these taxes and are still able to live, all be it, not there best life, that this is somehow proof or justification for the existence of such a continued tax regime. We are not inferring or making the case that taxes are the only hindrance to progressing in life, as it would be negligent of us, to also not make note here, that many in society are also being held back by their own approach to life, we are, however, making the case that tax reform in a fair and equitable manner is as necessary as ever, as we journey through 2023 and head into 2024.

Some of the reasons why many are held back in life lay with the lack of focus on economic literacy in the curriculum over past decades. While we do agree that the educational system does not bear responsibility for all learning through life, it does however, bear part responsibility for the foundation laid upon which future progression occurs. Successive administrations have rightfully allocated enviable budgets towards education year on year; however, over the span of decades, the educational system has been slow in modernizing the content, and the manner of delivery relevant to this subject matter, at the very least.

When financial habits aren’t taught either at home or at school from young (how to work for, value and manage money, then use money to grow wealth), children will often lack the skills they need to be self-sufficient later in life. This situation will impact the child’s future finances, but also self-esteem, relationships, and overall enjoyment of life when he or she matures into adulthood. This will more often than not, contribute by steering the social circles and levels of conversations in which they become involved, and more likely, not involved. Parents and the educational system represent the front line to ensure that children receive the best financial education – education that drives students to use higher-level thinking skills, and focuses on helping them develop systems and behaviors that build a foundation for managing their finances well. This should not be glossed over.

This is made no easier by the reality many students face in their home environment. Some students reside in loud, crowded, unsupportive and violent households and communities. Where this is true for those in such environments, it is by no means the definitive end of their story. It means they have the choice of breaking the cycle (whom many have). Those of us in society who have been fortunate enough to reside in an environment where learning can easily flourish, are truly fortunate. Such persons had an advantage over those who didn’t. However, learning and long term progress in life doesn’t simply occur even with the presence of advantages, fundamentals are required. One of those requirements is a deep-rooted desire to be better than your current circumstances. One should not look only to the fact that many Barbadians can functionally read and write, and graduate from the University or other tertiary institutions, as the best, or more importantly, the honest gauge for our collective description of educational position. Arguably, financial literacy, or illiteracy, will play a daily role in each adults life, regardless of their course of study at any level. It is not a good look on a country of nearly 300,000 persons that thinks so highly of its educational system, to have as a statistical reality, more adults (who have passed through said educational system) with cellphones than adequate personal insurance.

Executive Vice President and General Manager of Sagicor Life (Barbados) Inc., Paul Inniss, while speaking on the topic, “The Face of Next Generation Insurance”, during the 2021 edition of the Barbados International Business Association’s (BIBA) Global Business Week of activities stated that

“The level of insurance coverage within Barbados is significantly lower than ideal relative to our population size. He went on to state that he “believes this is crucial to fortifying the financial future of many individuals and families.”

Inniss stated that in 2019, the average market penetration rate in developed countries for insurance (life and non- life) was 3.8%. In Barbados, this rate stood at 2.7%.

“Globally it is understood that 3.8% is far below what should be considered a good rate of insurance coverage of any population, therefore, when we look at the Caribbean figures, we can see that these markets are lagging significantly behind. It therefore means that if the rest of the globe is currently described as underinsured, that we in the Caribbean are in a worse off position,” he stated.

The point being made here, is that under-insured individuals and families are statistically at a higher level of risk, regarding their ability to weather financial difficulty, and or, the inability to recover from any form of financial shocks to the aforementioned.

“For example, if an individual becomes seriously ill and requires significant and costly medical care, the expenses associated with the latter are often too much for them to handle on their own. In the case where an individual dies or can no longer earn a living due to illness or disability, the impact on their family could be significant especially if they were the principal bread winner” said Inniss.

One need not look any further than the ongoing COVID-19 repercussions as a perfect example of the critical value regarding being adequately insured. During such a disruption, many individuals and families have seen the benefit of having a financial safety net in the form of an insurance policy.

“No one would’ve started 2020 expecting to suffer a reduction in income from working less hours or being laid off from work temporarily; however, life is full of uncertainties that we should try our best to prepare for,” said Inniss.

“As a result of these unexpected occurrences, some individuals would have found themselves in a position where they could not meet their financial obligations. Thankfully however, being able to access funds from their policy has gone a long way towards helping them to ‘ride out’ this difficult period.”

It may be a tough pill to swallow, however, each individual is ultimately responsible for his or her position in life.

As such, when persons aren’t equipped on an individual level to navigate economic matters, it would explain with some level of obviousness, why many who turn to business are found to be on similar footing. In a nation where a significant number of businesses comprise the small business sector, and employ significant numbers of workers, on whom many households (numerically) are dependent, we, as a nation, cannot afford to have this sector mismanaged. This is not to say that big business in Barbados doesn’t have their own issues, however, they are often on better financial footing, and stand to correct quicker than small businesses in some cases.

This is important also largely due to the fact that many large businesses rely heavily on smaller enterprises to maintain their operations. This is proof that there is indeed a market for many small to medium sized businesses, however, for many of them to truly thrive in the face of mounting competition, and not simply survive, these must be structured and adequately staffed, planned and ran with efficiency. As reported by the Central Bank of Barbados in their publication, Small and Medium-Sized Business are the Backbone of the Economy, Adam Stewart, Group Executive Chairman of Sandals Resorts International revealed that in his Jamaica operations, 95 percent of weekly vendor payments are to small and micro businesses. The success of small to medium-sized enterprises (SMEs) is therefore critical, and he says it is the job of Caribbean business leaders to contribute to their success.

We would expect that the Barbados operation of Sandals Resorts International would closely mirror similar dependencies. It therefore remains very concerning, the lack of fundamentally required knowledge, of many persons who desire to start a business, and also, of those currently in business.

The areas of concern range from, understanding how to effectively evaluate the financial feasibility of a business idea, to labor laws, finances, budgeting, costing, pricing, taxes, insurance, regulatory reporting, effective communication, and unfortunately the list goes on. By way of the historical existence of this undeniable reality, the knowledge of such which isn’t unique or confined to professionals or locals, one can reasonably conclude, that many stakeholders within this sector, successive governments included, by way of deployment of ineffective policies, personnel and laxed regulations across some sectors (an effective ecosystem as it were), appear more concerned with the existence, the image and the number of businesses started, seemingly for the convenient use of public relation soundbites, than their efficient functioning and growth, and their contribution to the economy, while choosing to concentrate on other members of the economy as a means of financial relief for the government of the day. The inability of many in the business sector (as is similarly the case in the public sector, - evidenced and highlighted in the Annual Auditor General Reports 2021, and many a year prior) to satisfy proper (including timely) accounting, is a matter of great concern.

As we make this comment, again, we are not negligent of the many business programs available, and therefore aren’t allocating more blame to either the educational system, individuals, or successive governments, however, we seek to make note better can be done by all, as the result of mismanagement permeates throughout the economy. It is our hope that reasonable minds can agree that there is no loss when the education level is boosted and allowed to flourish and not simply exist.

To continue, while it is always concerning when encountering a small business owner with fundamental gaps in their operations (with particular reference to their planning, forecasting and deployment of resources, especially finances), it can only be described as worrisome when this is encountered by the National Insurance Scheme.

Our concern goes back as far as 2012, for the purpose of providing context to the recent public scenario of 2022, which the National Insurance Scheme found itself in, and by extension the contributing Barbadians and businesses. We think it important to state here, that while we search for an equitable way to steer this away from a financial reef, it is of critical importance to also learn why it got to this point, if for no other reason other than the fear of a repeat (even as the window for such a possibility narrows). It may however come as a shock to some readers (especially since we seem to be a people who cannot take constructive and objective criticism) that assigning blame is not our target, however, accountability cannot be overlooked.

To proceed, many may be shocked to learn that during the period 2012 to 2014, the portion of combined investments held by the National Insurance Fund (NIF) in government and quasi-government securities increased from 68 to 75 per cent. Either of these figures represent an alarming percentage, given the fact that its Investment Policy stated that this should not exceed a maximum of 50 per cent. Given that this occurred, and was brought to light, it is a wonder that immediate steps weren’t taken to rebalance the investment portfolio.

It is also worth noting that 75 per cent of assets were held in the public sector securities, while only 5 per cent was invested outside of Barbados. In addition, the portion of the NIF Asset Mix held in debentures was almost twice as high as the established target, while international equities were less than half of the target.

On any business day during this period, immediate steps should have been taken to radically reduce the portion of the Funds assets held in securities of the Government of Barbados (GOB). This viewpoint was also the recommendation of the 15th Actuarial Review in 2014.

One may ask, why couldn’t more be invested in foreign markets? However, being fair, investing overseas comes at the expense of using and loosing valuable foreign exchange and reserves. With full acknowledgement that at the time, Barbados had a Gross Domestic Product (GDP) of roughly BBD$10 billion, with NIS reserves around BBD$5 billion, it would be a challenge to say the least, to find sufficient investment opportunities in an economy that confined.

Still being fair, the authors of the Investment Policy Guidelines of the NIF, were well aware of the confines and prevailing conditions regarding the size of the economy, and the position of the Central Bank of Barbados regarding outflow of foreign currency when the policy was developed.

Nonetheless, the Actuarial Review indicated that the Fund’s investment mix was not in line with its Investment Policy Guidelines, and highlighted the risk of doing so. The Review stated,

“With large deficits and growing debt, the risk of Government being unable to repay the face amount of Treasury Notes and Debentures on or before their maturity dates is growing.”

“While investment managers and some policy makers may focus primarily on the Fund’s overall rate of return, the rate of return in the short-term will be irrelevant if the Fund is not able to realise the full face value of fixed income securities when needed.”

“The NIF should therefore seek to reduce its exposure to Barbados Government and public sector securities to a maximum of 50 per cent over the next five years.”

“To achieve this, the Board and investment managers should resist participating in new debt issues and treat all loan/investment requests from Government and statutory bodies with the same amount of scrutiny and due diligence that it would non-traditional entities. Where proposals do not meet the Fund’s investment criteria or fit within investment guidelines, they should be rejected,” said the Review.

As practicing Consultants with particular focus on policy development, asset allocation, and finance, we find the prior recommendations mentioned by the authors of the Review to be fiduciary in nature, and second such.

According to the recommendations of the 15th Actuarial Review in 2014, the investment percentage portion of combined investments held in government and quasi-government securities, remained at around 74% in local markets. With a target recommendation of 50 per cent maximum within 5 years, 5 years after, the Fund should have divested 24 per cent of its 2014 position, reducing it to 50 per cent.

With such practical recommendations being available to the Board and investment managers, via the Review as far back as 2014, it would be greatly appreciated to know, how, in the 16th Actuarial Review in 2017 (three years later), approximately 74% of the NIF was still invested in GOB and State-Owned Enterprise (SOE) securities, still well above target allocations in its Investment Policy, and recommendations by the previous Review.

Continuing from the 16th Actuarial Review in 2017, even though the Investment Policy stated otherwise, twice prior, if only for the purpose of understanding the thinking behind such a move, we query, and worry, why, in as of October 1, 2018, approximately 74% of the NIF was yet still invested in GOB and SOE securities, again, well above target allocations in its Investment Policy.

Such worry was further justified after recent comments by Mr. Derek Osbourne, Actuary with the National Insurance Board, during a Press Briefing on August 10, 2022, chaired by Prime Minister Mia Amor Mottley at the Lloyd Erskine Sandiford Centre, where he rightfully emphasized, and agreed with by the Prime Minister, that The National Insurance Scheme (NIS) needs reform to ensure it is not depleted in another 12 to 20 years.

This is quite the turn around from assurance given on September 1, 2017 (a mere five years prior) by then Minister of Labour, Social Security and Human Resource Development Senator Esther Byer Suckoo, when discussing the then 15th Actuarial Review, where the Barbados public was assured that the social security funds will not be in any danger for decades to come.

To quote the former Minister: “Overall the National Insurance continues to be sound, continues to be viable and there is no immediate threat to the National Insurance Fund,” she stated, adding that on its current track there would be no need for pension reform until 2048 and 2074.

However, she noted that the key factor in maintaining this stability is a growing economy.

“The actuary has concluded that the National Insurance Fund will be very well funded and sustainable if Barbados can achieve sustained economic growth in the region of an average annual economic growth rate of 1 to 1.5 per cent – higher would be better.”

“Economic growth will, of course, ensure that the National Insurance Fund as well as other indices that we look at in Barbados would continue to be on a good path,” she elaborated.

She then emphasised that this was the biggest concern for the Fund, which was not a reflection of how the Fund was being managed, but rather the overall economy.

“That economic growth is not something that the National Insurance itself is directly responsible for but through the statements of the Minister of Finance (then, Chris Sinckler), his budgetary measures, as were articulated in the Financial Statements and Budgetary Proposals recently, would see us continuing on an economic growth path,” said Byer Suckoo.

She said once the Ministry of Finance and other players do what they have to do to maintain the targets expressed by the actuary, then the National Insurance would be well sustained for a long time into the future.

The issues with such statements center on the fact that one of the key persons (the Actuary) recommended the NIF take a position of stability in the form of reduced exposure and not over leveraging the Fund. Additionally, during the period in question, the trends for the maintenance or continued growth of NIS contributions was wishful at best. Evidence of this can be seen in hindsight, also at the time, when, according to the Central Bank of Barbados’ half-year report released in August 2017, the forecast for real GDP growth was expected to be in the region of 1.3 per cent to 1.8 per cent, compared to earlier estimates of 1.5 per cent to 2.0 per cent.

It should also be noted that the former Minister’s comments on the confidence in the soundness of the Fund, came after the issuing of the recommendations by the Actuary, and the revised downward report released by the Central Bank of Barbados.

Byer Suckoo said that “if the average annual economic growth is weak, for example, 0.75 per cent or lower, then there would be a need to consider pension reform at an earlier stage.”

She insisted that “the challenges faced by the NIS are not unique to Barbados,” outlining those as being economic growth, an ageing demographic and its impact on contribution levels and pension benefits payouts.

When a comment such as this is made, it would suggest that the author of such a statement is unaware, that, the entire existence of the NIS is premised on the ability to manage assets, (better than individuals, as per the existence of compulsory contributions towards NIS we might add) and not to be hands off regarding responsibilities and outcomes (as stated by the then Minister) because of economic growth, an ageing demographic and its impact on contribution levels and pension benefits payouts.

This would have been an opportunity for a more economically literate population to have taken public issue with such statements by the then Minister, as this matter continues to reverberate throughout Barbados as we journey through 2023.

We would respectfully therefore add, that the manner in which the financial assets of the Fund was being deployed, was also a contributing factor to the current debacle in which the Fund finds itself.

To bounce back and therefore zero in on a clearer position of the NIF in 2018, we looked at the size of the Fund (5 billion dollars), its known investment position (74%), its Investment Policy directive (50%) in Government Securities, and its exposure (24%), and its Asset loss.

 5B*74% = 3.7B (amount invested relative to size of the Fund)

 5B*24% = 1.2B (over leveraged amount relative to size of Fund)

To follow, the then newly formed Government led by Mia Amor Mottley disclosed that official figures were underestimating the country's liabilities; public debt, on its broadest definition, amounted to 175% of GDP, compared with the previously believed 131%. In addition, Ms Mottley revealed that US$50m of debt service payments were due on June 18th, annual interest costs amount to Bd$800m (US$400m) and reserves were down to US$220m—equivalent to a mere seven weeks of import cover. Again, this is important to know as it provides context for what followed.

As a direct result of the above, unwanted but necessary critical steps were then needed, regardless of who sat in the hot seat as Prime Minister, optionally were those of the Government’s debt restructuring of 2018, which wiped out more than $1 billion in the National Insurance Scheme’s (NIS) assets, which the Actuary, Mr. Derek Osborne, who completed the 17th Actuarial Review of the NIS, stated in the most a public admission of this loss to the tax paying Barbadian public during the mentioned press conference reference above.

“Government saw it necessary to reduce its debt obligations, and like other bond holders, the NIS lost some of its assets. In this case, just over $1 billion,” he disclosed.

… just over $1 billion is what the NIS managers over leveraged position was from 2014 through to the 17th Actuarial Review December 2020, and ironically, is just over what the NIS asset allocation cost the taxpayers of Barbados, in the form of a loss. To further quote directly from the Review:

“NIS investments in public sector securities exceeded the limits set out in its Investment Policy for many years and in October 2018 the National Insurance and Severance Funds suffered from one of the key risk factors associated with pre-funding social security benefits – a significant loss on investments” according to the Review of the Fund.

To follow from the above, it would seem an uphill battle, to convince a reasonable minded and financially literate person to the contrary, that simplistically raising contributing amounts will be the primary solution for the NIF. What remains glaringly visible is the tremendous opportunity before the current GOB of 2023 to make a sweeping overhaul of how the Barbados economy functions, taking the skill set of Barbadians, market opportunities to be expanded upon, an revised equitable tax schedule for both individuals and entities, inclusive of the re-emergence of deductions at the income tax level, with specific reference to Registered Retirement Saving Programs (RRSPs). These and many other realities must be brought to life before we brag that “Barbados is open for business”, as we so often prematurely state.

At the time, Barbados’ economic contraction in 2018 of 0.6% would by no means be considered stellar, especially compared to its 0.1% growth in 2017 and the 2.9% average growth in 2018 registered by its Eastern Caribbean neighbors.

Like The National Insurance Scheme, we are of the belief that Barbados’ greatest asset is its people, however, we stop short of agreeing with the statement upon which, it (NIS) was partially brought into existence, which seeks to reinforce the principle of “mutual solidarity”. It sounds good, however, every used iteration of this approach in Barbados to social security has proven to be lacking in practicality and therefore sustainability. The continued fight for mutual solidarity, the irrational conversations regarding the increased performance of the Barbados economy in its current construction, due in large part to the current results of historical uncoordinated approach to the Barbados economy, demands us to take this position. This position becomes further justified, when one takes an understanding of the historical disproportionately targeted Income Tax schedule, paired with NIS contributions, into consideration.

It is a widely accepted economic principle, that an increase in a progressive income tax is associated with a decrease in the real growth of salaries, and conversely, that a decrease in a tax system’s progressivity is associated with an increase in the real growth rate of salaries. This point isn’t being made ignorant of the fact that successive Governments require operating capital, however, this should not come at the sacrifice of comfortable personal progress of the segment of the population who are worse off for it. It is common for many to understand that a government cannot tax itself out of a financial hole.

It is not our intention to bore any readers; however, we believe clear understanding is important.

In comparison to the income tax year 2014, in 2015 the changes applicable to the maximum individual taxpayer was the absence of the possible deductions totaling some $21,750. This effectively meant that the possible deduction amount (just mentioned) was now reproportioned to the first taxable income bracket. So even though the rate of the first tax bracket was reduced by 1.5% to 16% in 2015, said taxpayer payed an additional $1,531.25. The second taxable bracket while reduced similarly by 1.5%, made $1,675 payable due to the amount taxed, made possible by the repurportioning of taxable income. The total income tax payed for income tax year 2015 was therefore $7,275. A total increase of $3,206.25, while loosing $21,750 of total possible deductions.

In 2019, further deductions were removed regarding allowance of $1,000 available in respect of the support of each of (but not more than) two children of the taxpayer.

While it would be expected of any sitting GOB to make the case for the good that became of taxes, the removed personal income tax deductions in 2015 and 2019 were critical to the stagnation in the lives of many taxpayers and their families. Similarly, for all the good it has done, the present tax schedule continues to weigh heavily on the tax paying working class, and therefore the country.

The question begs to be asked, is the personal allowance of $25,000 the best that can be done, and, is it still perceived as an adequate figure on which a Barbadian is expected to maintain a healthy and responsible self for the duration of a year? The existence of this in law begs the legitimacy of this paper.

We should be mature enough as a people to admit truths. One such truth is that the middle class of Barbados “props up” the economy. No one reading this has to like how this sounds, but it doesn’t change what it is, a reality. We are at the point in our history where financially it doesn’t make sense for some workers to take a promotion. Why? This will generally result in more work and responsibility with an increased salary which could make their tax liability considerably higher, resulting in what feels less than worth it at the end of the month. We haven’t even spoken about how bonus is treated at the tax level.

The point being made here, is that a person who has figured out how to adult, (how to be self sufficient - which ironically is expected by every successive GOB, by way of the budgets spent on education primarily) is being penalized for it by way of not simply taxes, but exorbitant taxes, while, other members of society, in full recognition by successive Governments, are rewarded in many ways for not adulting. When this continues as it has, brain-drain and outward migration recognized by successive GOB and quasi agencies, should logically be expected and planned for. We are however encouraged to see that this has been recognized by Mr. Osbourne in his Review of the NIS, as recent as the Press Briefing on August 10, 2022.

According to Mr. Osbourne, every year the NIS looks at inflation and the wage index and determines the adjustment to be made in January for pensions. The idea is for pensioners to maintain the same standard of living when they first got their pension. Inquisitive minds query whether this is practical and sustainable ???

What this really means is that a person currently paying income tax now, can expect that their NIS contribution will be raised either by way of the taxable ceiling, or the tax rate to supplement shortfalls in benefit payouts to current pensioners and other benefit recipients.

However, one possible solution, as indicated by Mr. Osborne, is to make the average new pension smaller. This is the option where the NIS indicated that it has the most room. Given such statements are being made, this only makes it logical for a question such as the following to be asked.

If the existence of the NIS is premised on being able to provide for the working, contributing and pensionable Barbadian, and given the fact that since its existence it has only found it incrementally more difficult to fulfill its intention (by way of the seesaw between raising insurable earning ceilings and percentages), is this not proof that a critical fundamental criteria of its existence is not, or no longer met? That of being economically feasible. What would be the logic in contributing to a fund now, which will provide you with less later, than what is being provided now, which is admittingly not enough? Simply asked, is it really – now, a dependable lifeline as the tagline so proudly states? As we have stated prior, asking probing and uncomfortable questions are only in a quest to find an equitable solution to the very real problem of every tax paying Barbadian, that of retiring comfortably.

Therefore, we can’t help but observe noticeable components in the drive for a solution to the consistent challenge toward the continuation of the NIS is largely historical and emotional. As commendable as this is, sounds and may feel to many, these do not satisfy the fundamental of the continued fight. It may seem the easiest politically to champion, however, it remains inequitable and financially questionable.

While we do support planned retirement, and we do agree that some persons are better than others at finance matters, especially planning, we as a nation, should fully embrace the option of Registered Retirement Saving Programs (RRSPs) as a full replacement to NIS contributions for those who desire to, and would opt (should the opportunity present itself) to plan for their financial future without government assistance or involvement. Embracing such a feasible option, should result in the Government taking time, now, to embrace constructive, informed and highly involved stakeholder conversations towards the overhaul of its tax schedule.

Similar comments and request have been made by investment officials as far back as 2015, when the case was made that the absence of tax incentives has been a disincentive to persons desirous of investing in RRSPs. Prior to 2015, individuals with RRSPs were able to claim a tax credit of up to $10,000 on their plan during the filing of their annual income tax return.

With the removal of this deductible, according to Principal and Consulting Actuary with Eckler, Lisa Wade, “there was an immediate drop in the number of individuals taking out private pension plans.” Memory recalls Ms Wade stating that given that people were no longer getting a concession on these pension plans, they have “reduced their level of voluntary contributions”.

“When the tax incentives were there, most people topped up those even more with voluntary contributions which helped to ensure that when they reach retirement they would have a higher pension which would help them ride out any storm that would take place such as inflation.

However, we remain encouraged by recent comments and the acknowledgment for the need for urgent reform of the pension sector by the Recent Past Governor of the Central Bank Mr. Cleviston Haynes, when he indicated, that the time has come for authorities to consider offering incentives to Barbadians to invest in private pension schemes.

He made the suggestion as he said that Barbados’ ageing population and the continued rise in pension benefit payouts matched against lower contributions threatened the long-term viability of pension funds.

The administration of the current tax schedules, which many may wish to argue are a necessary component in the championing of “mutual solidarity”, are also an obstruction to the progression of many a tax compliant Barbadian from taking better care of self while they are actually working in many regards. The prevention of obtaining a reasonable mortgage (with room to breathe financially), adequately providing for older parents, and contributing to an adequate RRSP are but a few of the ways the current tax schedule affect (negatively) many a tax compliment Barbadian.

The future of social security is not beyond saving at this point, even though an honest understanding of how it got here, would require the arrival at no other conclusion than it is very near complete collapse, unless drastic changes occur starting now.

As we mentioned and alluded to throughout this paper, a better Barbados is a shared responsibility not negligent of personal responsibility. While seemingly by default, we as a people (if not a considerable number of us) first look to government and others to bring our bettered economic circumstances to fruition. This is not to say that Government doesn’t play a significant part to this end, however, in many cases this is impractical. We recognize that this may be difficult for many to come to terms with, only because of many taught and ingrained behaviors (habits) that have taken generational root throughout this nation, and has (in many cases) manifested itself in the form of expectations and entitlements.

One scenario where a reversal of this can be achieved would be through behavioral change, preceded by mature conversations, which cannot be absent. Some conversations must be led by government, continued by members of parliaments, parents, the educational system and recognized by individuals.

We make these comments to further our position that there is no time to waste as a nation when it comes to conversations on economic literacy. This is not specific to one or any class of Barbados, as many of us may often by default mentally conjure up when we speak on such a topic, but is all inclusive, public officials included. We aren’t directing this statement to any GOB, past, present or future Prime Minister, Minister, or Member of Parliament, when we state that it is easy to say yes, and accept a position, but then you must perform. Absence of the performance aspect (heavily influenced by competence) of some public officials is one of the time sensitive dangers we face as a nation.

We therefore close with the following. One absolute danger, therefore, should economic illiteracy continue to occur is this. We (as a nation) will continue to bring more opinions than informed commentary to the table, whether as informally as a conversation at home among family members, at work in the lunch-room, social media platforms, or, as formally as the political arena with its many opportunities. In fact, a lack of economic understanding may underscore why many struggle financially, and may be an essential ingredient of unrealized goals of many an administration.

This being said, a conversation on accountability also needs to be had, with a great measure of urgency.

Factually,

Sheldon S. Browne

Lead Consultant | Subject Matter Expert.