In this Expenditure and Revenue Programme, the Government has targeted a Primary Balance of 7.5 percent and virtually a Balanced Budget. There are only two ways to achieve this:
(1) Create the environment for large-scale investment that generates growth and revenue, or
(2) Severely contract expenditure and impose high taxation which combined creates compression in the economy.
The Government has chosen this latter route, with the addition of the raid on public sector entities as an added feature.
They are counting on this raiding of the surpluses in public sector bodies to achieve this.
In this fiscal year the Government is planning to take approximately $32 billion (gross transfers) from the public bodies in comparison with $26 billion in 2012/2013. This is coming from $20 billion when we left Government in 2011.
The expenditure side of the public bodies are expected to decrease from approximately $300 billion in 2012/2013 to $280 billion in this fiscal year. This will be the first time in over a decade that expenditure in Public Bodies will be reduced.
This is a ‘bang belly’ theory of economics, where you don’t use economic policy to drive economic growth by building muscle that in turn generates incremental returns from a well oiled economic engine, you instead rely on this raid and on ill-conceived revenue windows that themselves are hostile to investment and growth. So you end up with a 21
‘bang belly’ hope of a balanced Budget without building sustainability and long term competitiveness.
In consequence, in the short term you might, with the best luck in the world, end up balancing the books but without growth, expansion and job creating wealth creation, you are not balancing peoples’ lives (stated objective of the Prime Minister). There is no nutrition in a bang belly economy to make a better life for the people. So we deprive people of housing benefits and claim that we balance the books from a no growth bang belly economy. We have no coherent incentive-driven tax policy that can drive growth, but we want to suck out revenue without a corresponding mechanism to encourage investment and earnings to create new revenue streams. That’s a bang belly economy that may achieve short term gains but will guarantee long-term pain because we will not balance peoples’ lives that are ravaged by joblessness, substandard housing solutions, high cost of living and marginal incomes. The surest sign of a ‘bang belly’ economy is one in which there is no growth yet we declare high primary surpluses and low deficits. How is that typically achieved? Not by runaway growth from new investment and expansion but by relentless compression in the economy and raiding the public sector entities, robbing them of their ability to adequately perform the role for which they were created. The last time we had a balanced budget was under the JLP Government in the 1980s when the economy achieved annual average 6 percent growth between 1986 and 1990 after a period of structural adjustment after the debacle of the mismanagement of the 1970s under the PNP. 22
For the remainder of this presentation I will chart a course for moving from a bang belly, no growth economy that is sucking out the lifeblood of what remains and instead show the way back to 6-10 percent growth rates.