What plan for this year's budget?
Ian on Sunday
By Ian McDonald
Stabroek News
March 30, 2003
It is quite extraordinary, with quarter of the year gone, that this year's budget is only now being presented. Such delay opens up the interesting concept of retrospective budgeting which, perhaps, in future could be pursued to the ultimate conclusion of merging budget and actual outcome into one document, thus producing a budgetary masterpiece of 100% accurate forecasting.
This is an important and difficult budget to get right. On the one hand, given the depressed and depressing condition of the nation, the Government must surely be desperately looking to find a way, or ways, to give people and companies some incentive to work harder and invest more - perhaps by offering really significant tax relief to those precious few who actually pay taxes.
On the other hand, it is vital that the purse strings are not loosened to the extent that deficits yawn and deadly currency devaluation and inflation follow to add to our already dreadful woes. This column is being written before the presentation of the budget. I will be interested to see how carefully the Finance Minister has steered between Scylla (the sea monster of stagnation) and Charybdis (the whirlpool of inflation).
In the last few years the whole world seems to have woken up to the importance of "fiscal prudence" in running a nation's affairs. It is a mystery. Ordinary men and women of good sense have always known that profligacy leads sooner or later to misery. Charles Dickens puts the matter perfectly into the mouth of Mr Micawber, one of his great fictional characters: "Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery."
It applies to nations also - certainly to small developing nations like ours. Get the country into deep debt, waste money, run big deficits in the public accounts, indulge in overmanning and lax financial controls in the state and banking sectors - and, sure enough, misery will be the lot of the unfortunate and helpless citizens, though not at all necessarily the leaders of the country at fault.
Debt grows, inflation takes hold, the currency devalues, the economy declines - with the inevitable result that standards of living fall drastically to reflect the nation's ruined state. If a nation can't make ends meet then very soon its citizens cannot make ends meet. We in Guyana once had quite a lot of experience of that sort of thing.
The IMF takes a lot of blame because it is often associated with a drastic fall in standards of living - and the IMF indeed has often been heavy-handed in applying rule-of-thumb "conditionalities" which all too often seem inappropriate to an individual country's circumstances. But the truth is that in most cases a fall in living standards really has nothing to do with the IMF and everything to do with the nation's ruined state which occasioned the IMF being summoned to the rescue. Fundamentally, the misery flows from the nation's fault, no one else's.
As an aside, it should be noted that there is one country in the world which defies the general rule that you must earn as much as you spend in international trade. That country is the United States. While it is an axiom of international economics that no country can forever run a large trade deficit that must be financed by international borrowing, the axiom does not apply to the United States. This is because the United States in effect provides the world's reserve currency and can borrow what it must borrow in its own currency. Since it can print dollars there are no risks of default and in that sense the United States isn't really an international borrower like other international borrowers.
Lucky America! Other countries have no such luck. As a result, governments of small, poor states like Guyana, when they are preparing their budgets, have to listen carefully to the words of a great West Indian, born in Nevis, who was one of the founding Fathers of the United States. In his Report on a Plan for the Further Support of public Credit, dated January 6, 1795, Alexander Hamilton perceived a universal truth.
"To extinguish a Debt which exists and to avoid contracting more are ideas almost always favoured by public feeling and opinion. However to pay Taxes for the one or the other purpose, which are the only means of avoiding the evil, is always more or less unpopular. These contradictions are in human nature. And the lot of a Country would be enviable indeed in which there were not always men ready to turn them to the account of their own popularity or to make other sinister account.
"Hence, it is no uncommon spectacle to see the same men Clamouring for Occasions of expense, when they happen to be in unison with the present humour of the community, whether well or ill directed, declaiming against a Public Debt, and for the reduction of it as an abstract thesis; yet vehement against any plan of taxation which is proposed to discharge old debts, or to avoid new by defraying the expense of exigencies as they emerge.
"The consequence is, that the Public Debt swells 'till its magnitude becomes enormous, and the Burthens of the people gradually increase 'till their weight becomes intolerable. Of such a state of things great disorders in the whole political economy, convulsions and revolutions of Government are a Natural offspring.
"My previous report suggests the Idea of incorporating as a fundamental maxim in the SYSTEM OF PUBLIC CREDIT of the United States, that the creation of Debt should always be accompanied with the means of its extinguishment - that this is the true secret for rendering public credit immortal, and that it is difficult to conceive a situation in which there should not be an adherence to the Maxim."
"The creation of debt should always be accompanied with the means of its extinguishment." Let the Government - and Opposition - recall these words at a time when we seek sustainable development in very difficult times.
