January 24, 2014

Prudence over austerity says Prime Minister Gonsalves

Prime Minister Dr Ralph Gonsalves has again made it clear that his Government intends to manage the fiscal situation of this country by opting for prudence over austerity.{{more}}

Gonsalves on Monday during the delivery of his budget address explained that since 2008 the fiscal response moved back and forth between austerity and stimulus.

“In St Vincent and the Grenadines, we considered ‘austerity’ to be counter-productive; instead we fashioned some fiscal space for a measured ‘stimulus’ package. So to suit the specific, unique circumstances of our country’s economy and fiscal condition, we advanced the fiscal framework of ‘prudence’ and ‘enterprise’,” the Prime Minister said.

“In my Budget Addresses from 2009 onwards, my Government made it plain that it will not succumb to an ill-advised ‘austerity’ advocated by some locally, regionally and internationally,” he continued.

“I have listened to their mantra of severe cutbacks in recurrent spending and of tax increases,” Gonsalves said.

Prudence was to be distinguished from austerity the Vincentian leader said.

“Prudence means careful spending; it demands sensible expenditure controls; it calls for the elimination of waste and efficiency in expenditure.”

Austerity meant a harsh application of spending cuts and the avoidance of necessary and desirable expenditure and an increase in the tax burden.

According to the Prime Minister, in SVG the ‘austere’ expenditure cuts would undoubtedly include abolishing the YES programme and the Home-Help-For-The-Elderly.

He said those in favour of pursuing ‘austere’ measures would also seek to cut public assistance, remove payment of annual increments to public servants, cut sharply the allocations to goods and services, materials and supplies – including medical supplies.

The laying off of workers and public servants, cutting subventions to the SVG Community College and some of the other public enterprises and the University of the West Indies.

“Slashing payments to students of the School of Nursing and grants to University students, removing duty free concessions on Christmas barrels and to religious institutions; cutting back on special employment for road cleaning; rolling back the housing and land distribution programme for low-income and poor persons; shelving implementation for the Support for Employment and Training Programme for College and University graduates…,” the prime minister said.

Gonsalves admitted that these aggregate cutbacks could save at least EC$65 million, but his Government had no intentions of taking that route to slash spending in such a manner.

He further explained that the advocates of fiscal austerity had also recommended tax increases, including on the Value Added Tax (VAT) which he said they suggested could yield at least $20 to $30 million in additional revenues.

“But my Government will avoid that kind of ‘austere’ action,” he said.

Gonsalves expressed the view that whatever applicability of the austerity thesis there was elsewhere, it had no place in an economy like that of SVG.

He explained that it must first be realized that most of the Government’s borrowings were external and by way of soft loans from international entities such as the World Bank, the Caribbean Development Bank and the ALBA Bank and from countries such as Taiwan and Venezuela.

“Thus the theses of the Government “sucking up” capital and “crowding out” private investment have limited validity,” the Prime Minister said during his presentation.

He said that there was an excess of liquidity in the domestic commercial banking system and the domestic private sector generally lose confidence when the Government refrains from spending.

According to Gonsalves it was evident that prudence, efficiency, effectiveness and accountability in public finance were most desirable.

Sustainable debt management was an obvious factor in the overall management of public finances.

“Further, all things being equal, it is preferable to run a surplus on the current account, or indeed on the overall account than to run deficits,” he said.

But in an economy such as that of SVG, and in the current global and regional economic context, all things were not equal Gonsalves explained.

Fiscal prudence, reasonable enterprising risks and manageable public debts were the right admixture worth pursuing economic growth, creating wealth and jobs and strengthening the social safety net.

“Thus, to those who query: What’s wrong with austerity? I answer emphatically: Austerity is a dangerous idea because it does not and cannot work in a socio-economic milieu like St Vincent and the Grenadines. Austerity may balance the books, but it will certainly unbalance the country,” he said. (DD)