2015 Budget – a difficult balancing act

Fri, Jan 09, 2015

Next Monday, January 12, Prime Minister and Minister of Finance Dr Ralph Gonsalves faces one of the biggest challenges of his 14 years in office, in the presentation of the 2015 Budget. The Estimates were laid and debated in Parliament just before Christmas and now Vincentians anxiously await the measures to be outlined in the Budget.{{more}}

Dr Gonsalves is no stranger to formidable economic challenges. Just six months into his first term, he had to make adjustments following the repercussions of the 9/11 terrorist attack. Since then, he has had to put up with a succession of natural disasters, the global financial crisis of 2008 and, last year, the fallout from the December 2013 floods. All of these have had significant effect on the national economy , a fact that seems yet to be fully appreciated.

The 2015 Budget is complicated, not only by the aftermath of all these factors, but also political circumstances as well. It may well be the last Budget presentation before the next general elections, constitutionally due no later than March 2016, but likely to be held this year.

Under normal circumstances, pre-election Budgets traditionally contain a number of “sweeteners”, with incumbent governments trying to avoid unpopular measures, sometimes to the detriment of the national coffers, so as not to risk losing votes. But there are also economic and financial realities which create constraints as to what a government can afford.

Even petroleum-rich Trinidad and Tobago is having to face up to those realities as the impact of drastically-falling oil revenues threaten to undermine a clear strategy of transfers, subsidies and what some commentators call “hand-outs”, in the run-up to the election.

So one can only imagine the challenges facing the Finance Minister here. This is the year of the scheduled completion of the flagship project, the Argyle International airport, made more politically significant by the government’s deliberate strategy of hitching its electoral fortunes to the successful completion of the airport. It has been a remarkable, even a herculean task, but it has had its impact on the economic space available to the government.

In addition, in spite of the laudable optimism of the Prime Minister, it is an open secret that we are in a tight situation. This reduces the room for the government to manoeuvre and demands some element of restraint. So what can we expect in the Budget? How will the government be able to balance pressing claims to continue and extend its excellent social programmes whilst keeping the economy afloat in tight circumstances?

Will it be able to balance its books without significant revenue measures which may negatively affect its electoral chances?