by Rick Lowe
Mrs. Kelly gave me "honourable" (or should I say not so honourable?) mention in Monday's Punch in her Between The Lines column in response to this post. Download her article here (pdf)...
She argues that manufacturers (assemblers) here employ more people than the automotive industry and local assemblers save foreign exchange, and seems to suggest, as a result they deserve tax breaks. Is either case correct? Shouldn't these be quantified as opposed to conjecture? That would be the transparent thing for the government to do considering taxes or debt will have to be increased elsewhere to make up the lost revenue.
The central question is when a new light manufacturer (assembler) is no longer an "infant". According to Investopedia.com, emerging industry in an economy gets protection by tarriffs or quotas against competing imports until the "infant-industry" is stable enough to compete internationally.
Will we ever have the economies of scale to compete internationally? Seems doubtful. Even so, should these industries be granted more favourable terms than other industries forever, or should they be weened off over time?
Also, if it is necessary to reduce taxes for manufacturing because they make the new industry uncompetitive, is it that they (taxes) are too high in the first place?
She then cites the "Air Fare Credit programme, which helps subsidise the cost of visitor air travel to The Bahamas" and quotes Mr. James Smith, former Governor of the Central who makes the correct analysis that they are unsustainable.
This all simply confirms that when policies like this (incentives and subsidies) are adopted they become political fodder for all involved and in many instances additional "incentives" are found "necessary" that only create more dependency on bailouts and handouts, as has been shown with this about face by the incoming government. The Bahamas is not the exception as these policies are adopted all over the world.
Hotels are invited here with tax incentives, so want more when things get tough. And using Mrs. Kelly's own formula, they hire more people than any industry here so they must be entitled to subsidies and tax breaks? Said with tongue firmly planted in cheek of course.
Healthcare is one of the most expensive industries here, yet there are no tax breaks for private doctors, clinics or hospitals on the equipment they bring in. Why not? They seem to have special circumstances as they save lives.
The point is where will it all end? Government debt and deficits are out of control, with spending through the roof and many businesses are struggling, but to paraphrase Dr. Dan Mitchell, when the number of people riding the incentive and subsidy wagon out number the people pulling it, the country has a huge problem.
It is not up to the government to decide who wins and who loses with incentives or subsidies (other peoples money), that's up to the consumer. But politics trumps logic and economics at almost every turn.
