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Zoom in on the Economy

posted in: Weekly Commentary 0
By Lowell L. Kalapa

Despite the observations made by the economists in the community that things are getting better, those in the trenches seem to have a different viewpoint on how well the economy is recovering.
Businesses, both big and small, report that staying afloat is still a struggle for most. How can it be? The number crunchers tell us that occupancies are up and visitor arrivals are even better than last year! The problem is that for most visitors the visit is the experience and most of the daily expenditures are for food and lodging. According to the state department of business, economic development and tourism, the west bound (U.S. mainland) visitor spends on average about $148 per day while the east bound visitor from Asia spends about $233 a day.
However, while that eastbound visitor spends roughly 57 percent more than their west bound counterpart, they account for less than one out of every five visitors to Hawaii. Thus, the generous daily expenditure for east bound visitors is offset by the fewer number of them visiting Hawaii.
Economists point to the construction frenzy created by low, low interest rates which is spurring the boom in the real estate market as a major driver of the economic recovery. Add to that the substantial investment the federal government will make in the way of housing for military personnel in the islands and observers note that there is no lack of work for those in the construction industry. While a good deal of this activity is putting money back into the hands of consumers who in turn are spending it in the marketplace, it is apparently not enough for many businesses to cover the cost of operating their businesses and still make a profit. True some of those costs are beyond our control due to the global marketplace, but some are certainly within the control of government in Hawaii.
Unfunded federal mandates combined with regulations and permits required by state and local governments contribute to the high cost of doing business in Hawaii. From prepaid health care to workers’ compensation insurance to building permits and certificates demonstrating the need for a health care facility, the maze of regulatory standards cannot only cost businesses time and money but add eventually to the cost of the goods and services sold by that business.
As noted in an earlier column, elected officials think nothing of adding yet another requirement or increasing the tax rates on businesses because they believe that these costs can be “passed on” to their customers. What they forget is that locally those customers are you and me and outside the state, those customers can pick and choose from whom they will buy those goods and services. If Hawaii merchants have to recover their higher costs of doing business from those customers outside the state, they will probably be at a competitive disadvantage.
It is these “hidden” costs that are putting a squeeze on businesses, especially small businesses, here in Hawaii. With the prospect that the heat on Hawaii’s already high tax burden will be turned up even higher, the economic recovery that observers think is just over the horizon may just falter.
The point of the matter is that policy makers and administrative officials cannot overlook the fact that there is still a lot of work to be done to improve the business climate in Hawaii. Just because tax collections appear to be on the upswing should not deter policy makers from continuing to improve the prospects for attracting new businesses and investors to Hawaii.
That is what happened the last time around. In the late 1980s and early 1990s at the height of the Japanese bubble, public officials ran amok spending the money as fast as they could get their hands on it. The business climate was ignored, tax reductions were resisted, and ways were found to hide the financial largesse.
Should tax collections improve, lawmakers must seize the opportunity to improve the business climate by reducing taxes, streamlining the regulatory process, and by creating a more friendly climate to attract new businesses and investors to Hawaii. At the same time, lawmakers must resist the temptation to resort to gimmicks like the targeted business tax credits which have been so roundly criticized as missing the mark.
Yes, economic recovery may be just over the horizon, but for many the struggle to stay afloat continues. Let’s hope that lawmakers don’t blow this opportunity to improve the business climate … again.

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