The Government and Opposition used the 2014 Budget debate this week to try to paint each other as supportive of austerity measures to deal with declining revenue.
In his Budget Address on Monday, Prime Minister Ralph Gonsalves restated his government’s rejection of austerity measures, saying, “austerity is a dangerous idea” for St. Vincent and the Grenadines.
However, in his response to the Budget on Tuesday, Opposition Leader Arnhim Eustace, pointed to the failure of the Gonsalves government to increase public servants’ salaries for three consecutive years as an example of austerity.
Presenting the EC$911 million Budget, Gonsalves said he wanted to hear the recommendations of lawmakers “who clamour for ‘austerity’, a ‘balanced’ budget, and a ‘surplus’ on the current account at a time of continuing global and regional economic uncertainty and downside risks, and low growth in the domestic economy”.
“I have listened to their mantra of severe cut-backs in recurrent spending and of tax increases. In St. Vincent and the Grenadines their ‘austere’ expenditure cuts would undoubtedly include a socially indigestible menu,” said Gonsalves, who is also Minister of Finance.
He listed some social programme which he claim proponents of austerity would abolish, including the Youth Empowerment Service, the Home-Help-For-The-Elderly Programme, and cutting public assistance.
“From these aggregate cutbacks, at least EC$65 million could be ‘saved’. But my government will not take that route in slashing spending in this ‘austere’ way,” Gonsalves said.
Eustace, in his response on Tuesday, said the opposition would not abolish these initiatives.
Gonsalves further said that advocates of fiscal austerity also recommend tax increases, including on VAT. These recommended tax hikes could yield between EC$20 million and EC$30 million in additional revenues, he said.
“But my government will avoid that kind of austere action,” he said.
Gonsalves titled his Budget Speech “Strengthening the Socio-Economic Base for Recovery and Reconstruction after a Natural Disaster in a Context of On-Going Global Economic Uncertainty and Downside Risks.”
Floods and landslides from a low-level trough system on Christmas Eve claimed nine lives, left three persons missing and EC$330 million in loss and damage, according to government estimates, and EC$291 million according to the World Bank.
Gonsalves said “prudence” is to be distinguished from “austerity”. Prudence, he said, means careful spending, demands sensible expenditure controls, and it calls for the elimination of waste, and efficiency in expenditure. Austerity, on the other hand, Gonsalves said, means a harsh application of spending cuts and the avoidance of necessary and desirable expenditure; and an increase in the tax burden.
He noted that most of government’s borrowings are external to SVG by way of soft-loans, adding that the “the theses of the government ‘sucking up’ capital and ‘crowding out’ private investment have limited validity.
“Indeed, there is an excess of liquidity in the domestic commercial banking system,” he said.
Gonsalves further said that the domestic private sector, generally, loses confidence when the government refrains from spending, not when it ramps up public spending.
He said sustainable debt management is “obviously a critical 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 — recurrent and capital — than to run deficits.
“But in an economy such as St. Vincent and the Grenadines, and in the current global and regional economic context, all things are not equal. Accordingly, fiscal prudence, reasonable enterprising risks, and manageable public debts are an admixture worth pursuing to engender economic growth, create wealth and jobs, and strengthen 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,” Gonsalves said.
‘Good management’ or ‘austerity’?
But Eustace, in his response to Gonsalves, quoted economic growth figures from 1984, when his New Democratic Party (NDP) came to office, indicating that the economy grew for the majority of years when the party, which was voted out in 2001, was in office
This compares to three consecutive years of economic decline under Gonsalves’ Unity Labour Party (ULP).
“… we were running a current account surplus on the Budget for the full 17 years the New Democratic Party, yet the economy grew. We had money to submit and add to finance our capital programme.
“So, Mr. Speaker, what he is calling austerity? Because you have a current account surplus you are austere? That is good management of our resources, and we still had growth, Mr. Speaker. Now, what we have is deficits…” Eustace said, adding that for the first three years in office, the ULP also maintained a surplus on the current account, as the NDP had done.
Eustace said the NDP administration was able to provide counterpart funding for its projects from its own resources, thereby requiring less borrowing and keeping the national debt under greater control.
“The NDP was able to provide counterpart funding, businesses were flourishing and there was no business closures as you have today under the ULP. The government paid the private sector for the goods and services they provided and therefore, they didn’t have to lay off workers. The drug service at the OECS didn’t have to suspend NDP but they had to suspend ULP for non-payment. Today, we are constantly in arrears in terms of our payments to the private sector,” Eustace said.
“Mr. Speaker, with all the talk yesterday about austerity, this government — this ULP government — is now in the third year of a freeze in civil servants’ salaries. Well, if that ain’t austerity, I don’t know what is,” Eustace said.
“There’s been no salary increase projected for 2014, there was none in 2013, there was none in 2012, and he couldn’t even pay what was owed before that, you had to pay that in lump sum long time after it was due,” he said in reference to the monies salary increased owed to public servants since January 2011 and paid last October.
“That is austerity. But you’re pretending as if you have some magic wand — spend anytime, do anytime, do anything and all will be well. All is not well. All is not well at all. Look at the state of our economy today, look at the private sector, what is happening to it,” Eustace said.