No growth Budget 2017

first_imgThe dust has not settled on the reactions to Budget 2017, but the dominant sentiment appears to be one of disappointment. This was exacerbated when Finance Minister Winston Jordan confirmed during his budget speech what he had strenuously denied up to then: economic growth had ground to a halt and only increased production in gold allowed an adjusted growth rate of 2.6 per cent to be projected for 2017. This is a far cry from the double-digit growth rate needed over at least a decade for a near-term significant rise in  standards of living.Ever since the Great Depression of the 1930s, Governments in mixed economies have generally followed the economic theories of John Maynard Keynes, who proposed specific Government interventions to smooth out the regular business cycles or the deeper ones that result in depressions. They accomplish this through the revenue and expenditure measures of annual budgets in tandem with monetary policy that influences interest rates.But in the postwar era, with the challenge of the Soviet Union’s socialist model of Government interventions to deliver targets for growth in the various sectors of the economy via “five-year plans”, it became expected that Governments of mixed economies would follow suit in their annual budgets.From this perspective, the three traditional functions of mixed-economies’ budgets – allocative, distributive and stabilisation, were now deployed to deliver targeted growth rates. And it is this imperative that seemed to have escaped the Finance Minister in crafting Budget 2017.Take for instance, the allocation of resources between “public goods” – those, such as infrastructure – bridges and sea walls – that are essential to the citizenry, but are not provided for by the markets, and private goods. The Government announced it would be looking for private partners to construct the highway between Linden and Mabaruma, and also would be issuing bonds to embark on other infrastructural projects. Both of these measures will have the Government competing with private investors for funds and reduce the overall efficacy of investment decisions through what is called the “crowding out effect” because of higher interest rates.The Government, on the other hand, has steadfastly refused to consider the Amaila Falls Hydropower Project (AFHEP) that was totally funded by loans and grants and which would have been serviced by payments that presently go to the Guyana Power and Light (GPL). This win win situation was scuttled by the parties in Government when they were in Opposition and they have obdurately not heeded the calls of the domestic and international business community.For the distributive function of the budget, the Government uses its taxation and expenditure (fiscal) policies to assist in a fair distribution of income to the population as a whole. But what the Government has done is to increase the tax burden on the relatively minuscule middle class and this is giving them either a disincentive to work harder – since the marginal income earned will be taxed at the higher rate – or an incentive to cheat on their taxes. Either way, the economy will not grow as fast as it could have.In its stabilisation function, the Government can use its influence over monetary policy to stimulate growth of the economy by setting macroeconomic targets for, say, job creation and savings rather than just keeping inflation down. For Governments such as ours that are seeking to stimulate growth, inflation rates of two per cent are simply ridiculous and betray a tendency to stick to a course of action that has long been discredited.Another area where the Government has not shown enough creativity in crafting its budget is to, on one hand, complain that the price of sugar on the international market is set by players such as Brazil and India that heavily subsidise their producers and on the other, to declare that we cannot subsidise ours. They ignore the fact that when we close down half of the sugar industry, as they have decided, the economy will shrink and workers will be pushed on the breadlines.last_img