Posted: Wednesday, May 27, 2020. 9:47 pm CST.
The views expressed in this article are those of the writer and not necessarily those of Breaking Belize News.
By John Saldivar MSc (Econ):
SPECIAL NOTE ON FINANCING ECONOMIC RECOVERY AND THE ROLE OF MULTILATERAL AND BILATERAL PARTNERS
Any economic plan must be accompanied by a financial plan for implementation. Government finances are obviously strapped as a result of its very needed and proactive approach to investing in health care and social relief for citizens during this pandemic. There are differing views on the limits to sovereign debt which, suffice to say for now, may have to be tested. Government will have to keep a keen eye on the consequences as the national debt inevitably increases. It will have to weigh very carefully the opportunity cost of not incurring debt to address social relief and economic recovery. The commercial banking system is not designed to facilitate economic expansion and development. The current system is designed for the mercantile class and to expect it to adequately fund our economic recovery would be an impractical fantasy. The International Financial Institutions (IFIs) have also historically not adequately addressed development issues as many countries remain poor. There will have to be a complete rethink on the part of IFIs as their response to the collapse of public finances across economies resulting from this pandemic cannot be their usual arrangements punitive to the people. Of course, some may also say that this is wishful fantasy.
Nevertheless, some key areas already identified for collaboration with multilateral and bilateral partners include assistance with the Financial Administration and Modernization Program for the public service, including expansion of e-government, policy based loans for critical anti-corruption legislations and business development enabling environment, institutional strengthening of the health system for critical and effective response to new and emerging epidemics and pandemics.
They can also assist by opening contingent lines of credit for impending emergencies such as pandemics, hurricanes, droughts and floods, enable exchange visits with countries to adopt best practices in digital transformation and agricultural initiatives, and expand relevant industry-based international scholarships for technology transfer.
The economic recovery will necessarily have to be financed from a combination of sources including public finance, private equity, commercial banking to the extent that terms are feasible, multilateral funding, and the development of a capital market where innovation can meet with venture.
Government will need to carefully consider Public Private Partnerships, BOD models, direct investments in worthwhile industries even if limited to the start-up stages, as well as industry specific bonds. Where incentives for economic recovery will erode the already shrinking tax base and seen by some to be untenable, it must be considered that the investment will eventually, hopefully in the shortest possible time, result in expansion of the tax base. This really is a chicken and egg argument. Thinking outside the box may avoid us being buried in it.
THE WAY FORWARD: Public Sector Reform and Policies for Enabling the Business Environment
Digitizing Public Services and Education
For Belize to move forward out of this crisis not only the private sector needs to be ready, but the public sector needs to be retrained and reconfigured to provide services digitally. We must aggressively continue e-portal expansion to automate government services including setting up a call center for service delivery as well as automated collection centers. This will achieve greater efficiencies in all branches of government lessening operating expenses while increasing the speed and efficiency of service delivery to the public. The greater efficiency may eventually result in a permanent reduction in the required hours of work for public officers perhaps initially to six hours per day and eventually to a four-day work week using flex-time. The reduced working hours and increased work from home alternatives have already been proven entirely possible during this pandemic.
Even in the health sector we can embrace telemedicine as a means for doctors to stay in touch with patients and require less clinic time even after they have left the hospital or the country for that matter as we embrace medical tourism. The agriculture sector can also benefit from creating digitized videos accessible online to help our local farmers and even people with home gardens on how to plant, what to plant, when to plant.
The new normal and the structural changes that will inevitably take place in the economy will require a new approach to education. What we teach our children must be relevant to the changing times. We must revise our teaching curriculum at all levels to fill the needs of the new economy and society. We must complete the process of technological transformation of education. Digital delivery of education material must be fully embraced with teachers requiring retraining to facilitate this new mode. With digital delivery enhanced, the option of home schooling even for a few hours out of the week has to be given new consideration. Lesson planning can also now be digitized and banked thereby requiring less preparation time and cost for teachers. As with the public service, we can now explore a shorter workday and week for teachers. Teachers and other education actors must also be given their rightful place among the public policy decision makers. A direct seat on the Economic Mobilization Council is a must as teachers partner in leading the educational change required for the new economy.
The aim of tax reform is to improve the efficiency and transparency of tax collection, ensure equity in the tax burden, and to encourage private sector investment while simultaneously broadening the tax base. The amalgamation of the tax services has been a positive step in setting the administrative platform for tax reform, but much more needs to be done. There is need for further changes in Sales Tax, Business Tax, Personal Income tax, and Customs Duties.
Among the many considerations for reform there are a few that need urgent attention to assist struggling families and businesses affected by the pandemic and to close the loopholes that exists for unscrupulous businesses to under-invoice, hide sales, and avoid paying taxes. We must undertake a review of the last three versions of the sales tax to adopt the most effective and efficient practices of all three. We need to also make the tax system fair and equitable especially for families with children and struggling small businesses hardest hit by Covid-19.
For households, there has been an inherent bias against families with children which if removed can assist these families during these difficult times. Currently, families with children have the same tax liability on the same household income as a family without children. The personal income tax law needs to be amended to return to the age-old practice of allowing families to claim for dependents especially children who bring additional expenses to the household whether through school, uniform, books, tuition, meals, medical or clothing. It is only fair.
Currently, businesses pay the higher amount between tax calculated on gross revenues and tax calculated on profit. This has meant that even when a company suffers losses as many will this year due to Covid-19, they still have a tax liability. The law needs to be amended to allow calculation of tax liability based on the lower between the tax on gross and the tax on income. This would mean that if there is no profit from the operation of the business, then there would be no tax liability for that business. The current provision for losses does not provide immediate enough relieve and is therefore unreasonably burdensome on an already struggling business.
The finiteness of our land resources is indisputable. A substantial amount of these lands is under some form of protection which augers well for future generations and climate change. The remainder of lands are either crown land or privately held. The market should determine transactions involving private land and the Courts should protect the sanctity of these contracts and transactions. Government needs to design a fair and equitable policy for the distribution of the remaining crown lands. This policy must be based on a land use survey and resultant land use policy. Land must be put to its best use as determined by a land use survey for the progress and prosperity of the people of Belize. Land is not an ornament or treasure to be hoarded or put on a shelf for posterity or capital gains. Land is a factor of production and the primary source food, sustenance and shelter. Land that is titled to individuals bring with it a responsibility to maximize the output from that land for the progress of the nation. That was the purpose of issuing a lease prior to obtaining title. This purpose has been lost with titles issued before development.
Determining who gets title to the remaining crown land should be based on need in the cases of residential use and subsistence farming, and based on the ability, technological and financial, to maximize production in the case of large-scale commercial agriculture. Obviously then, there is a need to determine what is large scale and what is subsistence acreage. To acquire large tracts of land, perhaps above fifty acres, the prospective owner must demonstrate ability to develop. This policy is already in place but too often ignored. This process can happen before a special Large-Scale Farmers Lands Committee as a sub-committee of the Economic Mobilization Council with the necessary expertise in land use, business, and finance, and can transact its business in open public. Since the objective is to maximize agricultural production, multiple applications can be entertained.
To acquire residential land from government the prospective owner must be a first-time landowner. This principle has been violated too often and needs to stop. Second, third and multiple residential titleholders can look to the market for any further residential land acquisition. The land use survey should reveal the best lands for residential use and the survey department should use the latest digital survey technology to create virtual maps of subdivisions that will enable the Lands Department to issue title after minimal physical demarcation and without the traditional costly full surveys.
These residential titles should be issued by way of random lotteries with numbers issued to participants (first time owners) who would have attained the age of sixteen prior to January 1, 2020. There should be criteria for prioritizing applicants including age, number in household, marital status, employment status, and date of application, so as not to prejudice those who have patiently waited in the queue. Successful participants will then be issued title to a residential lot in the virtual subdivision but will be responsible for the actual full physical survey of the land. However, this obligation by the landowner should not hinder access to the land with certain restrictions on proximity of permanent construction to virtual lines until full surveys are complete. These titles should be issued free of cost except for a minimal administrative fee. However, the land should be assigned a market value which will become relevant for tax purposes if the land is subsequently sold.
To acquire land for subsistence farming a similar process can be used for up to fifty acres after proper vetting by the Lands Department. Since the proposal is for subsistence farming, multiple applications will not be appropriate beyond fifty acres.
Once the land use and distribution policies are in place a new incremental land value tax system should be put in place to encourage production and discourage speculation. Land that remains idle does not contribute to progress and development.
Covid-19 must not let us lose focus on our commitment to good governance and to eliminate corruption. We must accelerate the process of drafting and passing new laws to protect the country’s patrimony and wealth. Laws must be enacted within the next three months to amalgamate currently existing but fragmented and innocuous anti-corruption laws. The new legislation must clearly define violations of the public trust and levy stiff penalties for contraventions. It must strengthen the Integrity Commission and the Financial Intelligence Unit and create an independent anti-corruption unit to conduct covert surveillance, investigation and subsequent prosecution of corrupt officials.
Campaign financing laws need to be enacted being careful not to discourage legitimate contributors who may fear political victimization.
Economic progress cannot take please in an unsafe environment. Law enforcement and security must take a quantum leap into the digital age by employing the use of technology to help in the fight against crime. The security forces must be provided with state of the art surveillance equipment including street camera systems, interception devices and drones. Adequate training must also be provided. Government should explore the possibility of a National Security Bond to finance these much need improvements for our security apparatus.
Citizen Involvement: Designing A Participatory Process
We must once and for all establish a meaningful medium for discussion with the various business, investment, and community stakeholders. Economic growth and development are continuous processes. Our move forward must be a collective effort. There is no monopoly on ideas. The new normal for government administration will be participatory with the citizenry.
Technology now enables government leaders and public officials to interact more readily with the public facilitating constant dialogue, exchange of ideas, and canvassing of views and public sentiments towards policy proposals. This is change we must not resist. The Economic Mobilization Council needs to lead the charge for economic recovery. It must take greater responsibility for the development planning process as well as the capital expenditure allocation process. Government’s focus moving forward should be on building resiliency and sustainability and protection of the food supply all through agricultural diversification, green energy expansion, and shifting national consumption towards local produce.
Together we will build the second coming of the new Belize but to do so we must win back the trust of the Belizean people. We must make the development process more inclusive of the grassroots people. We must decentralize the decision making process and put communities in charge of their future. Nation building is a task for giants. Let’s get building.
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