The Budget and Greater Social Equity 

Editorial

It has been a long time since we last saw a landmark budget, touching those sensitive chords which trigger a much needed overhaul of the economy. The international economic crisis was an opportunity for us to probe deeper, identify our shortcomings in this respect and take actions to achieve the necessary overhaul.
Unfortunately, fiscal action has largely been taken on a piecemeal basis and, at times, it has even been directed to protect particular interests at the cost of others. The bigger picture has been eluding our decision-makers for a long enough time now. Redress has become urgent. This calls upon governments to take the bull by the horns instead of propitiating particular interests and losing the threads of the main plot.

The main threat has been coming on the production side. This means that unless we do the repairs on a timely basis, we will see our production shrink. There is little point rehashing old ideas such as repeating that we have an international or a Euro crisis. It does not release new ideas on what needs to be done; it only makes us complacent that those would be necessary difficulties we should put up with until the storm is over. This is no doubt what everyone around the world would be saying to manage popular discontent. We should instead be seen to be managing ourselves to broaden the scope of our production. In other words, we should be doing things that will go on overcoming the constraints imposed by the tough international economic environment. Instead of depending too much for our economic growth on activities that in the long run do not add to our production potential, such as relying on one-off capital inflows into real estate, we should be optimising use of our fundamental resources to provide for more sustained future growth.

Sustained growth will arise from putting to better use specific resources. Infrastructure, land and human skills are our intrinsic resources for this purpose. They contain the seeds of our future growth and they should have been prioritized by policy-making since a long time.

If we want our infrastructure to generate the new opportunities for additional economic activities, the question is: have we been putting enough of our budget resources towards the design and implementation of intelligent infrastructure that will carry us smoothly into the next decades? Or, have we rather been employing our budget resources more generously to feed into unwieldy welfare structures that have been eating into a more productive use of scarce resources? The trade-off struck between the two has been inefficient over the years with the result that the government budget has become saddled with deficits from which it has become nigh impossible to extricate ourselves. Unnecessary welfare-backed consumption has overtaken the urgency of spending instead on more essential capital investment by the government. Would it have been wrong to require those with the ability to pay for public services such as health and education to pay up, starting with token amounts, instead of continuing to lean on taxpayers to meet ever-growing bills? Would it have been wrong to thereby save on the universal provision of welfare in order to spend more purposefully on those who really need it? The various wastes of expenditure to which the Director of Audit keeps drawing attention might also have generated savings through better control, re-directing the avoided wastage to the financing of infrastructure. Obviously, this kind of reorientation of policy has to be proceeded with, fully equipped with the right “beside manners”, taking care of the risk that the cost of implementing targeted welfare spending does not end up exceeding the welfare benefits themselves.

Assuming governments did not have the latitude to make wise public resource allocations towards longer-term objectives, why has private enterprise not taken on upon itself on a significant scale to invest on a Public Private Partnership basis into those needed infrastructures, thus shifting the costs to users instead of making taxpayers be the eternal beasts of burden? Instead of making budget deficits the central focal point of income and expenditure policy?

Bold decisions are required if we want to avoid perpetuating a vicious cycle which keeps defeating implementation of priorities that should instead have dominated our spending plans. Those bold decisions would have generated alternative avenues for doing things better and saved us from a lot of recurrent wastage. Unlike the public sector, the private sector, being held on to high standards of performance by government requirements, would have ensured that enormous wastes are not occasioned when undertaking projects serving the public domain. Too much public money has been lost already doing and undoing certain public projects. This looks like casting the badge of inefficiency, broadly speaking, on the ability of our Civil Service to deliver the goods. There must be a good reason why strong leadership of the type we used to have in the past has not emerged to make the Civil Service a distinguished springboard for generalised development, producing extraordinary results with minimum resources. Where is the peer pressure based on excellence which used to drive the service through motivation? What prevents governments from restoring the erstwhile motivation factor through earnest reforms?

Land, water and good sanitation have received insufficient attention. Had it been otherwise, these could have become the tools for improving social well-being and contributing to our potential for expanding food and other agricultural production. Why should small planters be told now that they are exposed to making uneconomic use of their lands, given the cost and price factors that have come into play? Was it possible to anticipate this situation and re-direct the use of their lands to more productive and sustainable use? Yes, it was. Action should have been taken at the time the MASSA was under discussion with the EU; the differentiation between large and small planters, commonly premised on ownership, should have been tackled to generate an integrated economically viable countrywide agricultural plan to replace the old pattern which has been falling apart by modern reorganisation of production. We might by so doing, have improved our self-sufficiency in food supply instead of having to face up to the prospect of rising international food prices that have already climbed up by 31.5% on the level a year ago.

Decades down the road, we are still complaining about the decrepit and ageing water pipes that have not been replaced due to lack of resources. Or, new reservoirs not constructed for the same reason? Can we reasonably say, in the circumstances, that political ideology has really helped us to make the correct spending choices? The same priority should have been given to power generation, a basic infrastructure on which productive investors judge the degree to which they can risk undertaking production in competing international locations. Mere assurances will not do. An established strategic power plan based on efficient cost and pricing of power is a must to convince entrepreneurs that they are not in for a shock at some future time once they have embarked on activity.

We have survived as an economy thanks principally to diversification into export of goods and services whereas we were being written off as a lost case in the years of independence. This is a global activity. It supplies the low, intermediate and higher ends of the market normally. The higher the end of the market one is supplying to, the less the risk of loss of markets: Mercedes cars are still selling. Although we have made a lot of headway in export activity for our size, our enterprises are constantly bogged down by external market constraints. This means they are being competed out on external markets. There are successive demands by exporters in this context for currency depreciation to tide their companies over. While there may be short-term reasons for going temporarily in this direction to save production and jobs, this is surely not the answer. Temporary patches should not become a permanent adjustment factor.

Enterprises are expected to be re-engineering themselves at their own initiative and expense to face up to the competition. We are being told however that the international crisis is putting certain among them into exceptionally difficult situations. It is clear that those enterprises are not well positioned into niche markets or have been managed with vision. Had it been so, they would not have been seeking support through arrangements like the recent ERCP. They claim that short of receiving such support, they run the risk of being swept off their feet whenever the gusts get too strong. Such low-end enterprises can insulate themselves to some extent despite the crisis by “re-positioning” themselves on the markets each time they are buffeted. This “re-positioning” depends on their ability to adjust to constraints of falling external demand and to move on to areas of production that are less vulnerable to this factor. This can be achieved if they can keep raising the quality of the skills employed for moving on to those higher markets.

Once again, we can identify the key ingredient for getting out of difficult situations such as these to lie in education and high skill training. As this is our lifeline, we ought to be spending a lot of our resources here rather than elsewhere. Do we have enough high skilled trainers in the diverse domains in which we have been active and can we afford to venture out into newer territory on tougher export markets on the strength of the local availability of a sufficiently diversified pool of high quality trainers? We suspect not enough attention has been given to this factor. In the long run, vacuums in this area will have negative impact on our production and growth. The international situation demands directed allocations of sufficient resources to re-generate the economy into newer and more demanding fields of activity. Countries are increasingly in competition with each other to hunt out for scarce talents and we cannot be seen lagging behind. A lot of investment is no doubt needed to uplift physical infrastructure but even more effort and resources are needed to bestow upon us a sufficient scale of soft infrastructure (highly efficient pool of trainers) for diversified production towards increasingly intensively competitive global markets.

There are limited resources to support this kind of spending because past budgets have not always tapped the resources where they are available in plenty. More tax revenues could have been raised from areas where the economic space is being cornered up almost monopolistically by certain stakeholders. This potential additional tax revenue from such sources has remained untapped in the name of adopting a level playing field for corporate taxation. A god tax system should capture revenue progressively from available sources rather than discourage savers and those who make the effort to own up their residences. This progressive collection of tax is not a sacred cow. The tax system can be re-visited to give the government the ambition to embark on the “grands chantiers de l’avenir”, collecting revenues where they are generated the most under an improved standard of transparent financial reporting than it is conventionally done when filing tax returns. A bold decision to make those having the capacity to pay more tax contribute effectively to the extra effort currently required will not be out of place at this juncture. This is also part of the equation of social equity. 

* Published in print edition on 19 November 2010