Most analysts will agree that following a four-hour presentation by the Honourable Minister of Finance and Economic Affairs, it is extremely difficult to discuss the budgetary proposals in specific terms in any single undertaking as it relates to the various measures that were proposed. Hence, this column takes a rather broad approach to the budget by zeroing in on what I considered to be the two most critical themes of the financial statements.
To begin with, I am extremely happy to see that the Government has finally recognized in a real sense the importance of growing the economy to assist in overcoming some of the more troubling problems we now confront.
For too long there has been the practice of raising more and more taxes and fees to generate revenue to cover our huge and rising public expenditure.
That approach has only served to inflict more and more pain on the population by eroding disposable income and by extension purchasing power.
Given the country’s heavy reliance on indirect taxes, generating economic growth is the most feasible and painless strategy to increase revenue, particularly from VAT.
Indeed, the approach to achieving higher growth through diversification, restructuring the local economy, and granting incentives to various sectors of the economy is the right strategy – providing, of course, that there is the will to implement the various measures and that those who could potentially benefit rise to the occasion and take advantage of the proposed incentives.
On the fiscal side, the increase in the threshold for income tax and the lowering of the basic rate from 20 per cent to 17.5 per cent is a step in the right direction.
However, the failure of the Government to address the issue of taxing travelling and entertainment allowances has to be seen as a major disappointment since the working class, especially the middle-income earners, will still not be in a position to recover lost disposable income.
At the broader level on the fiscal side, it continues to worry me that most of the focus in terms of restructuring continues to be on the revenue side.
To me, more attention has to be given to expenditure reduction in order to bring the fiscal deficit down to manageable proportions.
The Government is proposing to reduce each ministry’s expenditure by two per cent, but that is only in response to the loss of about $29 million from the adjustment that will be made to the lower income tax bracket and rate from August 1, 2012.
Clearly, a comprehensive review of Government’s expenditure ought to be undertaken to determine areas where reasonable reductions can be realized.
Overall, the budgetary proposals can be considered a mixed bag, with some positive ideas for restructuring the economy and generating economic growth.
However, the budgetary proposals did not go far enough to ease the burden on consumers either through reductions in the cost of living or by any significant increases in disposable income.
Therefore it is clear to me that the budgetary proposals were more medium- to long-term in outlook as opposed to short-term. And that represents my major disappointment in the financial statements.
