enjoying fruits of your labour
Not surprisingly, Finance Minister Larry Howai has hinted that Budget 2012-2013 will include some austerity measures. The minister did not elaborate on what these measures are likely to include. Presumably, even as he dives into another deficit Budget, he would seek to trim expenditure and expand revenue. In pursuing his expressed goals, the biggest hurdle he will face is the government's political commitment to forego certain revenue streams (such as the Property Tax) and to refrain from imposing new taxation ("...there will be no new taxes...").
It is not that Government can improve its revenues only from taxation. Realistically, though, taxes on income and profits, goods and services, and international trade, contribute a sizeable percentage of revenue. We need note that the amended Property Tax that the PNM Government had proposed to introduce in 2010 would have yielded a paltry $200 to $300 million of total revenues of $44 billion in fiscal 2010-2011.
On the expenditure side, Government's big-ticket items are transfers and subsidies (50 per cent), wages and salaries (15 per cent), goods and services (15 per cent), and up to 2011, interest payments on debt (seven per cent). Debt repayments will increase since Government has opted to borrow more, raising the official borrowing limits twice over the past two years. The procurement of goods and services does not allow much flexibility except to the extent that Government exercises stringent controls over the procurement processes. And outside of a wage freeze coupled with some retrenchment among Government employees—hardly an option at this time—wages and salaries will continue to be a significant cost.
Would Minister Howai turn to transfers and subsidies, a whopping 50 per cent of expenditure, to impose cutbacks? Again, this is a politically sensitive issue. Most if not all State enterprises in the energy sector contribute significantly to Government's revenues, so they are not dependent on transfers. But other State-owned or State-controlled enterprises are not as profitable. They, and utilities like water, electricity and public transport, rely heavily on subsidies from the state coffers. Then there are contentious make-work programmes that cost billions of dollars every year with little to show by way of value for money expended. And just about every Minister of Finance has identified the $4 billion a year fuel subsidy, but no Government has dared to reduce it even marginally since 2003.
Outside of "cutting and pasting" to reduce the budget deficit, there is an all-important deficiency in the national economy, indeed, the national psyche, that was highlighted twice last week. It is low productivity, which has long affected the economy adversely. The latest Global Competitiveness Index released last week saw Trinidad and Tobago drop further down the rankings—to 84th spot out of 144 countries. While bureaucracy, crime and corruption contributed to this poor showing, poor work ethic, or low productivity, was a critical factor in determining our ranking.
Indeed, this national malaise was a topic for discussion at a high-level forum held in Port of Spain titled "Economic Challenges facing The Region". Finance Ministers, IMF and other top officials focussed on the grave situation Caribbean countries currently face. They identified many challenges—global economic shocks, trade spats, weather patterns, and so on. But a theme that was consistent is low productivity.
During discussions, St Vincent Prime Minister Ralph Gonsalves told the forum, "...In our countries, there seems to be a greater affection for pleasure and leisure than for productivity..." Corruption and crime undoubtedly have a serious negative impact on productivity. But so does "pleasure and leisure", a cultural characteristic that evaporates when our people migrate to countries that demand productivity.
This tells us that people can be motivated to become more productive. Increased productivity translates into economic growth. That, in turn, could obviate the need for austerity measures—meaning people enjoying the fruits of their labour without unnecessary sacrifices.
Can Minister Howai find the formula to unlock this hidden capacity?