On December 17, 2009, I wrote a piece in this space headlined Has the Government wasted money?" That commentary was published in the context of a sustained and coordinated narrative which argued that the previous PNM administration had "wasted" billions of dollars, "blown" the nation's patrimony on high-rise buildings in downtown Port-of-Spain and been found guilty by the population of "mass squandermania"–with the sentence having been executed on May 24, 2010. That commentary was also published in the context of a poll by Prof Selwyn Ryan published shortly before December 17, 2009 which indicated that 76 per cent of a representative sample of 1,003 people drawn from 11 ethnically mixed communities across the country believed that the previous administration was squandering taxpayers' money that could have been more productively used.
Going in search of evidence of wastage and squandermania, what I discovered was that of the $255.9 billion that was spent in this country between October 1, 2001 and September 31, 2009, the sum of $120.5 billion was spent in the budget heading subsidies and transfers.
That meant of every dollar in Government expenditure in that eight year period, 47 cents went to:
�2 Pay the senior citizens grant;
�2 Ensure that most people could afford to travel between Tobago and Trinidad;
�2 Facilitate free drugs for thousands of people with chronic diseases;
�2 Allow thousands of children to have a hot meal every day;
�2 Subsidise the cost of state housing;
�2 Fund the Gate programme which allowed thousands of young people to attend university who otherwise would not have been able to do so;
�2 Ensure that the price of gasoline was not adjusted every other day;
�2 Facilitate the transfer of monies to the Heritage and Stabilization Fund and the Infrastructure Development Fund.
The commentary also found that wages and salaries took 17.3 per cent of the $255.9 billion in expenditure from 2001 to 2009, some 15.7 per cent or $40.3 billion was allocated to capital expenditure, goods and services accounted for 11.2 per cent and interest payments for 8.6 per cent. Did it surprise me that only 15.7 per cent of the money spent over the period went to capital expenditure? No, considering that some of the capital expenditure in that period would have been borrowed and some drawn from the Infrastructure Development Fund. No one ever challenged the facts or the analysis but to say that the commentary was not well received by the majority of readers of this publication who took the time to respond to it would be a gross understatement.
Many readers saw the commentary as being partisan and political when what the column was attempting to do was generate a discussion on whether spending nearly 50 cents out of every dollar on subsidies and transfers was an appropriate use of the country's resources. This was based on my assumption that monies allocated to provide free drugs for the poor, free lunches for the primary school students, "free" tertiary education for the young adults, higher senior citizens' grants for the aged and affordable housing, inter-island transport for everyone were spent to improve the standard of living of the majority of most citizens. The commentary was also meant to generate discussion on the issue of which of the programmes funded by the transfers and subsidies would citizens be willing to do without if the Government found itself in a position of having to make significant expenditure cuts in the future.
Since the onset of the global financial meltdown in September 2008, the previous administration and this one, have opted to engage in deficit financing–borrowing to fill the gap between expenditure and revenues–rather than the much more difficult option of reducing expenditure or raising taxes. It's interesting that the People's Partnership, in government, opted to use a mix of policies quite similar to those that were in place for the last decade or so. According to the budget document Draft Estimates of Expenditure for the Financial Year 2011, the People's Partnership administration proposes to spend $25.343 billion on current transfers and subsidies in the current financial year.
That's 51.6 per cent of the Government's headline budget expenditure of $49 billion, but 48.6 per cent of the Government's actual total planned expenditure of $52.146 billion for 2011. The $52.146 billion, which is the correct figure for the 2011 spending, includes capital expenditure of $3 billion and charges on account of the public debt of $2.9 billion. I was thinking about the spending patterns of the past and present administrations when I read a paper by Mauricio Villafuerte, Pablo Lopez-Murphy and Rolando Ossowski, three International Monetary Fund economists, titled Riding the Roller Coaster: Fiscal policies of non-renewable resource exporters in Latin America and the Caribbean," dated November 2010. The paper analysed the spending patterns in Bolivia, Chile, Ecuador, Mexico, Peru, Trinidad and Tobago and Venezuela between 2003 and 2009.
The paper concludes that T&T's fiscal policy in the period 2003 to 2008 was the most procyclical of the seven nations meaning that its spending increased more sharply in relation to increased revenues than any of the other countries. The paper also concludes fiscal policy was "relatively neutral" in T&T and Mexico. Interestingly, the authors analysed the ability of the countries to respond to a resource price shock of 15 per cent and the capacity of the countries to manage such a shock. The analysis concluded that 37 per cent of T&T's available State financial assets would be used to deal with such a price shock. "The evidence shows links between procyclical fiscal policies during the boom and fiscal vulnerability. Broadly speaking, the fiscal positions of countries that implemented procyclical fiscal policies during the upswing tend to be those that are currently most exposed to resource price shocks and/or those whose exposure to shocks has increased," state the authors.
They also attempted to come to terms with long term fiscal sustainability, that is, can countries continue with their spending trajectories into the future given their resource endowments. They concluded that according to the IMF's projections of the 2010 non-energy fiscal balance "were it to be maintained unchanged the future, would not be sustainable in the long run for Ecuador and Trinidad and Tobago." In other words, we can't continue to run fiscal deficits for much longer. The authors stress that "long-term unsustainable positions do not necessarily imply the need for immediate adjustment, although the issue may be more pressing for countries with short remaining production horizons" such as T&T.
They add: "Governments could reap sufficient fiscal dividends (through higher nonresource revenue) from higher government spending to keep their 2010 levels. However, the latter will depend on the quality of government spending, its impact on economy-wide productivity levels, and the government's ability to reap fiscal dividends from the additional activity–as well as on the quality of overall policies, institutions, and decision making." In the context of the conclusions arrived at by these three economists, should we begin to have a conversation about what aspects of the $25 billion the Government proposes to spend on transfers and subsidies in 2011 can be sacrificed and what impact will it have on the standard of living citizens?
