The trinidad Guardian / As Finance Minister Colm Imbert prepares to present his third budget tomorrow, he will be faced with a worrying gap between what Government earns and what it spends. Projections put the gap at $10 billion for the current fiscal year, ending on September 30.
For some specialists, it is time for Imbert to take decisive action if he is to make sure the government has a credible fiscal policy and that markets have confidence in its ability to steer the country through these difficult times.
For senior lecturer at the University of West Indies, Dr Roger Hosein, the deficit can be seen as a sign of weak governance, increasing the risk that confidence in the economy drops and investments are stifled.
Former minister in the Ministry of Finance, Mariano Browne, says now is the time for Imbert to take decisive action. For Browne, the Minister of Finance has been “playing for time, hoping for an increase in energy prices and gas output”.
“We are in a period where the adjustment process is long, this could take at least ten years. This is survival, so we need to determine what is critical for our survival, what are our priorities, and those are the things that the government has not begun to address that’s why I call it a menu of fudge,” Browne said.
The situation may be more critical as the government’s revenue projections presented at mid-term review may have been too optimistic. According to Hosein, last fiscal year the state generated $44.01 billion in revenue and, for the current year, it has projected a total of $48 million.
For Hosein, the problem is that, if this fiscal year’s tax collection pattern is similar to last year’s, with the period from October to March representing 45 per cent of the revenue, T&T may be heading to a considerable shortfall.
“For the corresponding period October 2016 to March 2017 the State only collected $16 billion in fiscal revenues and, if one were to again assume that this will stand for 45 per cent of all Government revenue to be collected for fiscal year 2016/17, then this interprets that for this fiscal year the State would realise a mere $36.8 billion in revenues,” Hosein said. That would leave the government over $10 billion short of its forecast.
The problems for Government do not stop there.
At the start of the current fiscal year, the balance of the country’s Consolidated Fund, Government’s main bank account, was $29.5 billion in the red, at least an improvement on the previous year’s $33 billion gap.
In his mid-year budget review on May 10, Imbert said the reality currently facing the country is “how to run an economy accustomed to $57 billion in expenditure on $37 billion in tax revenue”.
The challenge for Government, according to Hosein, is that even if expenditure is cut by five per cent, the “budget deficit would still be large”.
“Such a large fiscal deficit, if viewed as weak governance and when considered against the backdrop of the International Monetary Fund’s estimate for the TT economy of 5.1 per cent contraction for 2016, would lower the confidence that business people have in the economy and stifle the investment process,” Hosein said.
PAYROLL COST: $10.6 BILLION
A big part of the government’s budget goes to pay its workers.
The state’s annual wage and salaries bill for this fiscal year was set at $10.6 billion, an increase of around $1 billion on the previous year’s.
For Hosein, the state would have to manage increases in its wage bill moving forward because, as it stands now, it already needs to find additional resources on a monthly basis to meet this bill.
Speaking during his conversations with the nation last month, Prime Minister Dr Keith Rowley said there are 89,000 public servants on the central government’s payroll, including 39,000 civil servants, 13,000 member of the protective service and 16,000 teachers.
The figure excludes local government and state-owned enterprises. Even so, it has been going up. Hosein highlights that, in 2016, the central government employed some 76,000 workers and, in 2001, they totalled only 50,000.
“This is a significant increase no doubt motivated by the state padding in the labour market via the make work programmes,” he said, adding that employment in the period 1999 to 2016 in central and local government increased a whopping 64.6 per cent.
“In this regard, the state may have become a bit over-staffed. However, even if the state were to shed some workforce, total output in the central and local government sub-sector of the economy may not fall and indeed its average productivity may rise, if it is carrying surplus labour,” Hosein said.
“Whether or not the private sector could absorb the labour force shed by the state remains to be seen, but the restart of the highway to Point Fortin and the Diego Martin overpass once fully started would directly or indirectly absorb some of the workers shed by the state. This transitioning would not be immediate nor black and white” he said.
Last month, Dr Rowley met with the trade union federations-the Joint Trade Union Movement, the National Trade Union Centre of T&T and the Federation of Independent Trade Unions and Non-governmental Organisations-to signal that there would be no further job loss in the public sector for this year.
Wise or not, with the payroll reduction option closed, Hosein says Government should look at subsidies to determine what financial cuts it needs to make. These subsidies include below market prices for fuel and electricity, for instance.
“A good starting point for the reform of state expenditure therefore would be to review the additional $13.4 billion on transfers and subsidies spent between 2007 and 2016, although the level of nominal GDP was basically the same in both years. A line by line approach would have to be taken,” he said.
Browne said “transfers and subsidies rose to approximately 51 per cent of government expenditure, accounting for the entire increase in government revenues during that time”.
The only “bright spark were the fiscal incentives which facilitated Juniper (gas field) and other projects,” Browne stated.