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Serious challenges for Mr Howai
Newly appointed Finance Minister Larry Howai must be commended for his forthrightness in noting that budget deficits, and large ones at that, are likely to continue over the next three to five years. Not being a political animal like his predecessors, and without a trail of political baggage, he was able to apprise the nation of that reality, therefore alerting the country not to expect magical budgets featuring surpluses.
Specifically, it is clear that the Finance Minister was sending the not-too subtle message to the trade unions that, with the deficits extending into the future, it would not be reasonable to expect large settlements in the public sector. It is left to be seen if the public-sector unions will become less aggressive in their demands for wage increases.
With regard to raising revenue to assist with filling a few of the gaps in the budget, already the minister has indicated that returning to some form of property tax cannot be avoided. The issue for property owners was and will be, this time around, the level at which the tax is pitched and the fairness of it across income groups.
In his search for other possible areas and sources of revenue, Mr Howai must surely be salivating at the prospect of inevitably, and over time, removing the $4 billion subsidy on petrol. In the mix of Mr Howai’s calculations for revenue are what he says are the significantly lower oil and gas prices compared to those of the 1990s and early 2000, when the country lived as if high energy prices were ordained to remain at those levels forever.
Now economists and economic theory are not averse to temporary budget deficits. The issue surrounds the use to which they are to be put: for productive investment with a time-frame set for ending the deficits? Or are the annual deficits being spent with no prospects for returns?
Those are essentially the challenges that Mr Howai has to confront and overcome. How is he going to turn the deficits into surpluses through initiating productive projects in the energy sector? And how is he to stimulate the economic environment for private investment in the export sector?
With regard to the first point, until the economy is diversified, the possibility of increasing export earnings rests with stimulating the energy sector, including encouraging the large energy companies to go in search of new and productive fields.
In the instance of local companies investing, the word that has been coming from the sector for some time is “confidence.” As a former banker, Mr Howai is very familiar with the hesitancy of investors.
Those are serious challenges facing the new minister as he works with the technocrats in the Ministry of Finance and gets word from the new Governor of the Central Bank about the monetary implications of any and all fiscal measures that he may be disposed to take. The various segments of the population, including the Opposition, seem to have accepted the former banker as someone with the qualifications and experience to get the job done.
It is certain that such acceptance does not mean blind support for any measure the minister may want to introduce. However it surely helps for a new minister, and one who has not come through the political ranks accustomed to having his every initiative thoroughly examined, to experience goodwill. But he must know this honeymoon period will not last, and results must rapidly begin to be seen.
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