FLP on Budget 2009

[posted 21 Nov 2008,1600]

Budget 2009 is characterised by a rather large bundle of concessions which may create distortions within the economy and have a negative impact on Government revenue, Labour Leader Mahendra Chaudhry warned.

“It will give rise to widening Budget deficits. It is disturbing that this is being done at a time when Government needs a strong revenue base to fund development expenditure,” Mr Chaudhry said.

The Budget deficit level has been increased from 2% in 2008 to 3% in 2009. This is justified so as to promote growth principally targeted at infrastructure development.

“The same objective could have been achieved by maintaining the deficit at 2% while reducing operating expenditure,” Mr Chaudhry said.

Figures show that government’s total operating expenditure has gone up by $120m for 2009 and its wages and salaries bill is up by $74m, compared to 2008 revised expenditure estimates. This is contrary to government’s objective of reducing its operating expenditure.

Higher deficits mean more borrowing thus raising our national debt which had been brought down to an acceptable level in 2007and 2008.

Mr Chaudhry welcomed the Budget’s focus on infrastructure development and government’s intention to closely monitor capital development projects, pointing out that huge amounts of money, running into hundreds of millions of dollars had been lost on infrastructure projects under the previous SDL government.

“Project monitoring is very important and I welcome the intention. However, experience has shown that government lacks this capacity to ensure that we get value for money. There is, therefore, a strong case for outsourcing capital projects,” he said.

The Labour Leader expressed concern at the declining levels of Foreign Reserves, down to 3.2 months of imports.

The Reserve Bank will have to play a more vigilant role in monitoring capital inflows and outflows. It needs to monitor the export dollar more closely and ensure that tourism receipts are brought into the country, he said.

There is evidence that a substantial part of our export earnings are not brought back into the country.

On Sugar, Mr Chaudhry expressed disappointment that the allocation of $5m for support to the industry was far short of the $10 million the industry had requested.

“This is likely to impact negatively on the industry’s reform and restructure programme.’’

It is to be noted that EU assistance totalling $50 million for 2009 under the National Adaptation Strategy programme has been withheld.

On the reduction in corporate tax, Mr Chaudhry said there was a need to maintain equity by ensuring that the individual taxpayer received similar treatment, particularly those in the middle income bracket.

He expressed concern at the across-the-board increase in duty to 32% on all goods in the 27% duty band and warned of the serious inflationary effect this will create.

He welcomed the tax to be levied on the bottled water industry but pointed out that no details were provided on how this was to be done.

Mr Chaudhry also welcomed the increased allocation for the Health and Education Budgets but expressed concern that the Family Assistance Allowance allocation of $20million had not been increased despite the fact that there were hundreds of poor people on the waiting list.

The role of price surveillance institutions (PIB, Consumer Council and Commerce Commission) should be strengthened and not curtailed. It is in the interest of the consumer, particularly the poor, that these entities not only be maintained, but also be given more importance, Mr Chaudhry said.