Persistent deficits send wrong signal
It’s budget day and, as the saying goes, nothing in life is certain but death and taxes; and in Trinidad and Tobago, for the fifth time in as many years, a deficit national budget.
Finance Minister Larry Howai has confirmed, in the lead-up to his second national budget presentation in Parliament, that this will be largest budget in the country’s history.
But what exactly is a deficit budget?
“First, we start with revenue and expenditure, or how much money a country earns and spends. When revenue is equal to expenditure, we have a balanced budget; when it is more than expenditure, we have a surplus. When expenditure is more than revenue, you have a deficit.
“A deficit means for that period you spend more than you earn,” senior economist Dr Ronald Ramkissoon explained to the Express yesterday.
Trinidad and Tobago first recorded a deficit over fiscal year 2009 of $7.5 billion (after the budget had projected to have a surplus of $19 million). Since then, a deficit of lucky number $7 billion has been a constant feature of the national budget.
In 2010, the fiscal deficit projected was $7.7 billion; 2011, $7.73 billion; 2012, $7.6 billion; and 2013, $7.66 billion.
“Just as for an individual or country you do not want to be running a persistent deficit—one for too many years. From time to time, there is nothing wrong to be running a deficit depending on month or year, etc.
“But from the point of view of a country, you do not want to be running persistent deficits because it sends the wrong signals to citizens and the international community, especially if those deficits are large. Ours have not been unduly large, but it’s time we return to a balance or a surplus,” Ramkissoon said.
Despite the high projection, the deficit isn’t usually that high, mainly because the Government does not actually spend the amount of money it plans to, especially since it does not appear to get several of its capital projects off the ground, Ramkissoon noted.
Despite Howai’s promises to bring the budget back to balance by 2016, Ramkissoon thinks that may be too long, especially since we have a good revenue stream.
Government’s recurrent expenditures, especially transfers and subsidies, have been rising—accounting for more than 50 per cent (or more than $30 billion) of the Government’s spending.
The fuel subsidy alone costs Government almost $4 billion every year.
Government make-work programmes like the Community Environmental Protection Enhancement Programme (CEPEP) and the Unemployment Relief Programme (URP) collectively cost almost $1 billion.
“Good fiscal management dictates that you do not have large sustained subsidies. What the Government should do is spend more on capital expenditure that will generate wealth—like building roads and bridges and ports and facilities that would encourage business and transform your economies,” Ramkissoon said.