~ The Risk of Overestimating Your GDP (Part 4 in this series) ~
our previous three papers
The old (2017) GDP data set seems more likely to be accurate.
Risks of using overestimated GDP figures
- If GDP is overestimated, Tax in relation to GDP will be underestimated. Additional taxes by increasing compliance will be underwhelming. You cannot tax what you have not produced.
- Economic diversification and entrepreneurship. If the hospitality sector in St. Maarten is underperforming by both arrival and occupancy figures, there will be little room for diversification and entrepreneurship. Both will underperform.
- The population figure and GDP per capita. It is stated that St. Maarten has a large undocumented / non-compliant population. It seems more likely that GDP is a lot lower, GDP per capita a lot lower and when adding in the undocumented population an even lower GDP number. This reasoning is in line with the reported poverty on St. Maarten.
- If productivity is not there, it can not be taxed either. If the government continues to generate deficits based on unachievable income we will find ourselves deeper and deeper in debt. Servicing the newly created debt will make the economy less sustainable. Sint Maarten needs to increase productivity, not look for ways to goose the numbers and pretend to be able to tax fictitious income.
With a tax to GDP ratio of 35% St. Maarten’s economy has a significant tax burden. What the economy doesn’t have is the social safety nets usually associated with such highly taxed economies. Fiscal administration leaves a lot to be desired. Regular checks and balances either fail, or, when they don’t, are ignored.
St. Maarten pretends to be very productive given its high GDP numbers, while ignoring reality. The result is a country that lives above its means and then targets a segment of the population as being undocumented or non-compliant without a shred of evidence. The result is a downward spiral of less production, less income combined with an increased demand on an increasingly unfunded social safety net, while poverty and the associated social ills increase.
This vicious circle will not pause, it will continue spiraling downward until we actually make the concerted effort to reverse it. The only way to do this initially is to focus on generating income from tourism and maximizing production with the capacity we have galore.
This is not an easy task, it is however the only logical one. The sooner St. Maarten takes the collective blinders off and realizes this the better.
https://shta.com/measuring-an-elephant-in-a-room-using-wittgensteins-ruler-by-gaslight-4/
