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The budget


There are no new taxes in the 2006 budget. It is expected that such increases in expenditure as there are will be met by the additional revenue generated from improvements in tax collection, reductions in tax concessions and growth in the economy. The Leader of the Opposition thinks that this is unrealistic . It is all a matter of judgement. Rather than speculate on the issue, this commentary confines itself to three crucial issues dealt with in the Budget: Petrol pricing, Public Expenditure and Development Policy. {{more}}

A small developing country that constantly struggles to balance its recurrent budget cannot afford to subsidise petrol prices, particularly if those prices tend to rise inexorably. It is true that transport is critical to economic development, but governments usually deal with this by providing infrastructure such as roads and by granting tax concessions on the import of trucks and buses in special circumstances. Cars are of course a different matter. They are, to some extent, a luxury item and equity demands that in any tax system luxuries be taxed more highly than necessities. It would, however, be an administrative nightmare to have car owners pay more for petrol than the owners of other types of vehicles. We all therefore have to pay a price that would cover the full cost of the petrol. There is of course the wider issue. The roads of tiny island states like SVG can only accommodate a certain number of vehicles. In some small states this matter is dealt with by administrative fiat and heavy taxation on car ownership.

Government’s Recurrent Expenditure falls into 5 main categories: Wages and Salaries, Pensions, Transfers, Debt Servicing as well as Goods and Services. All 5 categories need to be carefully monitored.

Public Debt now stands at $985 million, 85 percent of GDP. All OECS countries are now above the bench mark, 60 per cent. Does this mean that as independent and democratic states these tiny countries are inherently unviable? Alternatively, are the benchmarks unrealistic? Interestingly enough, EU countries had similar benchmarks which large countries like France and Germany simply abandoned when they ran into trouble.

The entire Western world now faces a pension crisis. People are living longer and the number of retirees is growing more rapidly than the working population. In SVG the NDP has aggravated the problem by giving the public servants not one but two pensions. In addition to the pay-as-you-go system we always had, the NDP, through the NIS, added a contributory system so that some civil servants may well receive a bigger income in retirement than in work. This matter needs to be revisited.

Already some suppliers of Goods and Services as well as wage earners are complaining about late or non-payment by Government. It is indefensible for a government to subsidize petrol and at the same time not pay some of its workers or its suppliers of Goods and Services.

As far as development policy is concerned, agriculture cannot now be regarded as an engine of growth. Education is, but it takes time and there can be many a slip between the cup and the lip. It is therefore heartening to note the efforts the Government is making to develop tourism. These include projects such as Argyle and Canouan airports, the Mt. Wynn and Buccama schemes, the Cross-Country road, the bridge and tourist facility at Rabacca as well as the establishment of the Tourist Authority. Until these projects come to fruition Construction will continue to be the engine of growth.

Apart from tourism the other service industry to which reference was made in the Budget debate was Information Technology. The problem with this is that we are not a very numerate people. As soon as you mention mathematics most students become very nervous. We are not like India with thousands, perhaps millions, of mathematics graduates. Hardly surprising then, that most of the outsourcing based on IT has bypassed us and gone straight to India.

Efforts to combat the health problems posed by diabetes, hypertension and the recent explosion in arthritis will have to be intensified. To this end the consumption of fruits and green vegetables needs to be encouraged. With our climate and many of our people still living in detached houses it is possible for most of us to grow these items for ourselves. On a larger scale, given the shortage of labour in the agricultural sector it is family-operated farms that will have to do the bulk of the production if agricultural output is not to continue to decline.

The enthusiasm for regional integration needs to be tempered by always asking ‘what’s in it for us?’ Regionalism can easily degenerate into a situation in which we struggle for foreign exchange outside the region and then spend it on expensive manufactures produced or assembled in the larger islands.

The Government is to be commended on its policy of being tough on crime and the causes of crimen