The 2013 budget presented by Finance Minister Larry Howai two weeks ago has generated a great deal of comment—much of which has questioned whether the minister’s projections for growth and revenue generation are realistic.
Of the many statements on this issue, the one that resonated the most was made by Independent Senator Subhas Ramkhelawan in his contribution to the budget debate in the Senate on Monday.
Ramkhelawan advised the Government to base its scenario planning for the growth of the economy on the lower end of estimates because if a government plans for less revenue and the projections are pessimistic, the upside would be “gravy.”
According to Gail Alexander’s report of his comments, Ramkhelawan said: “The minister has only just left the business sector, but if you are only planning for the upside and you take that spirit lash, you don’t know where you are going to end up. Well-organised families plan like that. The family of T&T must not be misled. The cold, hard facts must be told.”
Quite so, senator
If the Independent Senator had more time, it is quite likely he would have included in his presentation deeper analysis of the Government’s spending patterns.
It is my view—and the view of Senator Ramkhelawan and several others—that the Ministry of Finance needs to invest more time in analysing the patterns of expenditure in this country.
If he is not currently in possession of the analysis, at some point in the near future, it is expected that the Minister of Finance would be in a position to give a definitive answer to this question: Is T&T’s expenditure profile sustainable if there is a sharp reduction in the global prices of T&T’s main exports?
On the balance of probabilities, it is more likely that the global economy will show more definitive signs of recovery next year, given the extent to which central banks around the world have lowered interest rates and pumped new money into their respective economies.
Coming out of last week’s meeting of the International Monetary Fund and the World Bank in Japan, the International Monetary and Financial Committee, chaired by the Minister for Finance of Singapore, issued a most interesting statement, which read in part: “Global growth has decelerated and substantial uncertainties and downside risks remain. Key policy steps have been announced, but effective and timely implementation is critical to rebuild confidence. We need to act decisively to break negative feedback loops and restore the global economy to a path of strong, sustainable and balanced growth.
Advanced economies should deliver the necessary structural reforms and implement credible fiscal plans. Emerging market economies should preserve or use policy flexibility as appropriate to facilitate a response to adverse shocks and support growth.”
But what happens to the global economy if the advanced countries do not deliver the “necessary structural reforms,” or implement “credible fiscal plans,” or if there is another too-big-to-fail shock to the global financial system that causes a new round of paralysis in the world’s financial markets?
Would the Minister of Finance be able to adjust expenditure quickly enough to deal with the consequences of a new global recession, which is likely to cause a sharp reduction in the amount of tax revenues the Treasury collects?
One of the striking aspects of the 2013 budget that no one else has commented on is the extent to which the Ministry of Finance has increased transfers and subsidies.
According to the 2012 Draft Estimates of Expenditure budget document, the total transfers and subsidies allocated for the last fiscal year amounted to $29.59 billion. This comprised $23 billion in current transfers and subsidies and $6.5 billion in transfers to state bodies.
The total allocation to transfers and subsidies in the 2013 Draft Estimates of Expenditure document was $33.05 billion. This means the allocation to this sub-head of the budget—which takes the lion’s share of the country’s total expenditure—increased by $3.4 billion or by 11.7 per cent.
Now, the 2012 Review of the Economy states that transfers and subsidies in the last fiscal year were expected to amount to $27.34 billion.
Of that amount, transfers to households increased from $8.13 billion in 2011 to an estimated $9.05 billion in 2012. This is an increase of 11.4 per cent.
According to the Review of the Economy: “This transfer includes expenditure under the GATE Fund, which is expected to amount to $834.4 million, a 33.5 per cent increase on the amount expended in fiscal 2011.”
The category known as Other Transfers accounted for the lion’s share of transfers and subsidies and was expected to amount to $12.3 billion, accounting for 45 per cent of the total transfers and subsidies figure cited in the document.
Other Transfers include monies allocated to the Infrastructure Development Fund, the Heritage and Stabilisation Fund, GATE and the Caricom Petroleum Fund. (It may be that GATE is receiving a double allocation, but it needs to be explained why the GATE funds are accounted as part of the Transfers to Households and Other Transfers).
While it is clear that much of the transfers and subsidies are used for important issues—such as the aforementioned GATE allocation—the underlying issue is can T&T afford this level of transfers and subsidies, especially when $4 billion is being spent every year on providing a subsidy for fuel?
Should the Government not compile a list of good and bad subsidies and transfers—with the latter being those areas that can be cut or eliminated if the country’s revenues deteriorate?
And shouldn’t the Minister of Finance have set tone for the country’s post-gas boom future by capping the 2013 transfers and subsidies at the 2012 or the 2011 level?
As former Governor of the Central Bank, Ewart Williams, pointed out in an interview with the marketing and communications arm of the St Augustine campus of UWI, it is highly unlikely that Mr Howai will have the political space to make the necessary adjustments the nearer T&T gets to the 2015 general election.
Here’s what Mr Williams told journalist Nazma Muller: “The budget deficit is going to be $7 billion this year, and the Minister of Finance says we’re going to reduce the deficit by one per cent every year.
“Hello? Which government, which Prime Minister, two years from elections, is going to let you do that? You can’t do it now, you going to do it next year, when they start to prepare for elections? Or the year after? What stupidness is this? We’re not stupid. You CAN’T do it then because of the electoral cycle. You can’t. So don’t fool us. Manning used to say, ‘Anything you have to do, do it in the first and second year. The third year we start working on re-election.’ Is that system compatible with the long-term sustainable development of the country?”
The retired governor also wondered aloud whether the answer is for a change in our present political system.
“Would politicians’ outlook change if they only had one term?” he pondered. “Would they work in the country’s interest instead of the re-election cycle? These are legitimate questions.”