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Raffique Shah


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Better bite the bullet now

By Raffique Shah
September 21, 2014

Nine out of ten people, if asked to comment on Government's 2014-2015 budget, would quietly, and many grudgingly, say it was a good package.

For the average citizen, what matters most in the annual Appropriation Bill are what new measures strip him (or her) of some portion of his earnings or wealth, meaning taxes or levies, and what new benefits accrue to him by way of increases in grants, subsidies, soft loans and so on.

The elections package delivered by Finance Minister Larry Howai last Monday was predictably generous on giveaways and devoid of any new impositions on citizens. From womb to grave, quite literally, the Government has proposed measures that will see the wealth of the nation, or what is left of it, shared among the masses, more so the poor and vulnerable.

What more can mankind ask for? From a "baby grant" for the poorest who time their pregnancy well, to increases in old age pensions, disability grants, easier mortgages, tax amnesty and more—you wished for it, the minister delivered. GATE, CEPEP, URP and dozens of other programmes that provide relief for many and rewards for a select few (corruption), remain intact.

The feeding frenzy continues. Don't worry, be happy. Amidst the ecstasy of oil dollars flowing into the coffers, why would anyone think about the agony of declining oil production, gas reserves at their lowest levels ever, and the additional threats to our traditional cash cows in the energy and downstream energy sectors?

Thing is, this time around it was Howai and the People's Partnership's moment of glory, their opportunity to play a September Santa. Next time it may be another party, another government, but the tune will be similar if not the same.

That is because there are no philosophical underpinnings to governance in this country, no ideology to guide economic and social policies. True, the PNM, during its long tenure in office, grasped the possibilities in exploiting natural gas, out of which evolved a diversified industrialised economy that few nations this size can boast of.

But the root remained anchored in hydrocarbons, with perennial talk about deeper diversification that remains talk. Agriculture is almost dead (0.5 per cent GDP at current prices). Manufacturing, once robust, languishes at 5.6 per cent.

And guess what accounts for 50 per cent of GDP? The services sector—primarily distribution and restaurants, finance, insurance and real estate, and construction and quarrying. These cannot sustain the economy, cannot bring in foreign exchange.

On the social side of the equation, the PNM opted for a hybrid welfare state, hence the early birth of entities like the Unemployment Relief Programme (URP) in whatever incarnation. A phalanx of other, similar programmes would follow under successive governments. The IDB recently identified 63 social protection and labour programmes, with duplication in many. And, as some international agencies noted, and we citizens know, the more billions expended on such programmes, the more corruption you have.

I am not suggesting that we ought not to have a welfare state, nor will I ever agree that we bow to the dictates of agencies like the IDB and the IMF. Defending the budget against calls for reining in expenditure on "transfers and subsidies' (currently over $30 billion), Howai cited Norway as an example of a highly successful welfare state.

True, the "Nordic Model", variations of which exist in Norway, Sweden, Denmark and Finland, is the envy of much of the world outside of obscenely oil-rich enclaves like Qatar, the United Arab Emirates and Brunei that are so wealthy, taxes are unheard of and many goods and services are subsidised.

In contrast, welfare states like Norway are successful because they prudently manage their wealth. Oil dollars did not dazzle them into losing focus on other, traditional sectors of the economy, or on doling out money freely. Corporation tax (20 per cent) and income taxes (approximately 50 per cent) remained intact, and gasoline at the pumps sells for US$9 a gallon.

In return, because most of the oil and gas revenues are saved in a special sovereign fund (the biggest in the world—currently close to US$900 billion), unemployment benefits are huge—90 per cent of previous earnings. But when the unemployment bureau finds you a new job, you'd better grab it or lose your benefits.

So yes, ours is a welfare state of sorts, but one that operates more by "vaps" than proper planning, with a mishmash of programmes that are abused by the beneficiaries as much as they are exploited, even vandalised, by the benefactors.

Returning to the budget, its generosity to the elderly, the infirm, the poor, the vulnerable, cannot be questioned even if the measures are targeting voters in the next elections. Once the oil dollars flowed, every incumbent government did likewise.

The harsh reality, though, is that we do not have limitless reserves of oil and gas, or guarantees that the good times will roll on forever. Unless we make some significant finds soon, oil and gas will decline into insignificance as early as in ten years.

Better bite the bullet now, wean citizens off dependency, and avert an economic storm that is sure to strike if we do not rein in wild spending.

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