Extra tax money illusory

Perhaps this is so, perhaps it is not. Mr Enill went on to say that "We should not only expect to see an increase in consumption patterns nationally, but also an increase in national savings as well." His assumption, it seems, is that people will use part of the extra money to buy things and save the other part.

However, matters can hardly be so straightforward. If, as Mr Enill assumes, the beneficiaries of the tax break are so rational, their consumption patterns should remain the same while their savings should increase. This is particularly so if the trend of the increasing cost of living continues, since that would mean that the extra money from the tax break will be illusory.

But Mr Enill has raised an important issue, which is crucial to the country’s future. There is no developed economy where citizens do not have a certain savings rate — 25 percent is considered healthy but 15 percent is commendable. But the savings mentality has not been part of our culture, although certain groups within the society have brought this cultural trait with them. It would therefore be useful for the Finance Ministry to keep a close eye on consumption and savings patterns over the next 12 months to see if Mr Enill’s prediction holds true. If it does, that bodes well for the national economy. If not, then the authorities will need to look at other strategies to increase national savings.

There is, however, an inherent irony in Mr Enill’s words since, even if citizens are as economically rational as he makes out, their restraint could be undermined by the Government itself. Mr Enill went on to say that, "The Government through the Ministry of Finance and the Central Bank would continue its prudent macro-economic management of the economy with the judicious use of fiscal and monetary policies to stabilise incomes, prices and employment, thus ensuring that the economy does not deviate too far from its potential growth path."

However, a government that spends millions of dollars on blimps and CEPEP programmes, and which plans to spend millions more on an unnecessary sports complex and a "Government campus" and so on, is not likely to be seen as fiscally prudent.

What we hope, is that the Government will be as economically rational as those citizens Mr Enill has such confidence in and try to spend less and save more.