We had a bit of a laugh in hearing the most recent advice from the IMF, in their latest Public Information Notice the IMF covers a seminar that was held t0 address selected cross border issues affecting the Caribbean and the three issues selected are financial integration, tax incentives and investment, and trade preference erosion.
On two of the three issues the IMF’s position isn’t that bad.
On Financial Integration:
... Directors considered that closer integration of the Caribbean’s still largely segmented financial markets can be expected to help generate higher economic growth by improving access to credit and lowering interest rate spreads. However, more integrated financial markets will also allow shocks to spread across borders more rapidly and pose greater regulatory challenges, especially with large financial conglomerates operating across different industry segments and in several countries.
On Trade Preference Erosion:
… the strategy to address this difficult challenge will need to involve carefully targeted social safety nets to alleviate the impact on affected vulnerable groups; efforts to raise the efficiency of existing banana and sugar industries, where viable; and transition away to new economic activities, in countries where production is unlikely to be competitive even after significant efforts and investments.
Now we come to the fly in this ointment…..
… In light of this, and recognizing the intense competition for global investment funds which the region faces, Directors encouraged Caribbean policy-makers to weigh carefully the costs and benefits of tax exemptions and consider reducing them if possible; to step up efforts to improve other determinants of investment; and to make remaining tax incentives more cost-effective.
So if I’ve got this right, the incentive to get the revenue is costing you too much revenue, so you should cut the incentive to reduce your losses. But….. if you cut the incentive you may not get the revenue so you will end up foregoing even more revenue.
Hmmm so after some thinking we in the margin came up with this economic theory.
“While tax incentives may be expensive and may have costs associated with foregone revenue, not having the incentives is even more expensive” In short it’s better to have 75% of something rather than 100% of nothing. (And we aren’t even trained economists!)
This advice comes from the same people who managed the Jamaica’s and Guyana’s structural adjustment programs!