Posted: Tuesday, March 31, 2015. 9:30 pm CST.
By Richard Harrison:
The Prime Minister of Belize, Hon. Dean O. Barrow, read his eight consecutive annual budget for the Government of Belize, with the theme “Continuing the Transformation” on March 13, 2015.
“So this year, like every preceding year stretching back to 2010, we will rely on lifting revenue flows only through improved tax administration and the closing of existing loopholes. We will focus our efforts on tax auditing and on monitoring fiscal concessions and on cracking down on GST evasion” ~ PM Dean Barrow
In 2014-15, total revenues and grants were expected at $956.15m, but turned out to be $959.36m, or 0.3% above budget. It was 5.48% above the 2013-14 revenue of $909.52m. The 2015-16 budget expects revenue to increase to $980.26m, or 2.18% increase over last year.
In 2014-15, total expenditures were expected at $1,011.19m, but turned out to be $1,100.81m, or 8.9% above budget for this election year. It was 7.62% above the 2013-14 expenditures of $1,022.9m. The 2015-16 budget expects expenditures to fall to $1,068.27m, a decrease of 2.96% below last year.
In 2014-15, a deficit of $55.04m was budgeted, but due to higher than expected expenditures relative to revenues, the deficit came in at $141.45m. For 2015-16, a budget deficit of $88.01m is projected.
In 2014-15, grant funding was expected at $46m, but came in at $42.28m, which is roughly 4.4% of total revenue. For 2015-16, grants totaling $40.57m, or 4.1% of revenues, are projected.
I. REVENUE HIGHLIGHTS
a. Petroleum taxation is projected at $7.5m in 2015-16, down from $21.46m in 2014-15, a significant decrease of 65%. It is not clear whether this is related to tax on imported petroleum products or tax on domestic crude oil production, or a combination of both. If the government plans to decrease taxes on fuel to lower the pump price and improve competitiveness of the productive sector, it should signal to the market if this is part of a medium-long-term strategy that will affect all sectors of the economy or only targeted special-interests in the short term.
b. Import duties were projected for 2014-15 to be $162.56m, but it turned out to be $150.67m, or 7.3% below budget. This occurred even as imports grew from $1,862.45m in 2013, to $2,008.19m in 2014, an increase of 7.83%. This suggests massive bleeding at the customs department, which apparently the government believes is due to tax exemptions for fiscal concession beneficiaries, and hence their promise to increase monitoring of that area. That is a red herring….they do not want to point to the real problem, nor to stem the bleeding….too many of their loyalists depend on this to feed their gluttonous appetite.
c. General Sales Tax was $236.79m in 2013-14, and was budgeted at $247m for 2014-15, but came in 3.6% above budget at $255.95m. For 2015-16, the projection is for $263m or 2.8% above last year, almost the same as the projected growth of the economy. Thus, the promise of cracking down on GST evasion seems more like beating an empty barrel. Why would you project lower growth of this revenue source if you expect to crack down?
d. Property income is budgeted at $19.55m for 2015-16, which is $5.04m or 34.7% above 2014-15 revenues of $14.51. It is not clear where this big increase will come from, but there should be an explanation offered as to who all in the economy will be negatively or positively affected.
e. Ministries and departments revenues was $36.1m in 2013-14. It was projected at $35.35m for 2014-15, but came in at $32.17m, or 9% below budget. For 2015-16, the projection is for $31.96m. This does not seem right given that most of the ministries and departments have raised their fees and demand for their services have increased…..this suggests massive bleeding within the government to which a blind eye is being turned by consistently budgeting downwards each year.
II. EXPENDITURE HIGHLIGHTS
a. Personal emoluments went up 11.53% from $312m in 2013-14 to $347.98m in 2014-15, and is projected to increase to $367.78m in 2015-16, or 17.88% over 2013-14. When salaries and benefits are taken into account, public sector jobs are now more lucrative than private sector jobs, which is very different from what is seen in countries with high-growth, private-sector-driven economies.
b. Pensions amounted to $54.79m in 2013-14 (6% of revenues), and was budgeted at $57.78m for 2014-15, however it came in 9.1% above budget at $63.05m (6.6% of revenues). For 2015-16, pensions are projected to amount to $59.67m (6.1% of revenues). How pensions can be forecasted to go down while personal emoluments go up needs explanation.
c. Goods and services expenditures went from $173m in 2013-14 to $191.56m in 2014-15, and is projected to increase to $210.84m in 2015-16. This is a 21.9% increase over this two-year period, and suggests that the government is living in luxury. It is either that, or their own inflation estimates are far below reality.
d. Capital expenditures which were $242.68m in 2013-14 rose to $258.56 in election year 2014-15, however is projected to significantly decrease by 25% to $194.8m in 2015-16. The government is probably hoping for a breakthrough in new revenue source, or feels it needs to temper its draw-down of PetroCaribe funds given Venezuela’s instability, or is uncertain about court rulings and capital requirements it would need to settle outstanding claims and liabilities related to acquisition of utilities and other assets….which is perhaps why it has promised a supplementary budget before the end of the fiscal year as a wait-and-see approach. A new robust petroleum find, no major loss in the courts, improved Venezuela outlook or other such stroke of luck…or decision to hold surprise bi-election or general elections…could trigger spending increases through a promised supplementary budget.
III. GENERAL COMMENTS
a. The government had projected a deficit of 1.6% of GDP, however due to spending above budget, the deficit came in at 4.12% of GDP. This year, the government projects the deficit to be 2.46% even before a promised supplementary budget is read. This government is not afraid to spend money it does not earn….future generations of Belizeans are being mortgaged, and it is obvious that Belizean voters are going along with “lets live for today and not worry about tomorrow”….we are willing to live high at the expense of the children of Belize…when we should be making sacrifice so that the children of tomorrow live better than we do, while retaining majority ownership of Belize.
b. Loan interest payments will remain at around $91m, however loan amortization will increase from $66m to $86m due to SuperBond arrangements….thus requiring $177m or 18% of revenues to be used for paying loans. We are going rapidly to the same treacherous debt cliff where we were when the super bond baby was conceived….only now the amount we owe is two times what it was then….nailing Belize to the debt cross….a prime minister’s super-ego fulfilled at the expense of several generations of Belizean children who will have to pay the bill, either trapped in increasing poverty or required to be more efficient and effective than their competitors to dig their way out of the hole. Those informed, knowledgeable, intelligent and wise around him, am sure, have registered their concerns. Machiavelli rules the day…money laundering, drug trafficking, organized crime, contraband, prostitution and gangsta culture rules the night.
c. The budget declares an employed labor force of 134,600…..with unemployment rate of 11.6%…suggesting that the labor force is 150,214….or 15,614 employable persons needing jobs. Yet the population census shows that the 15-64 age-group was 194,000 in the 2010 census. These numbers do not add up….not even for those who refuse to open their eyes. My own estimate is that the employable labor force is closer to 168,000…..which would make average unemployment rate be 20%….with youth and female unemployment rates much closer to 25%, and adult male unemployment around 15%.
This is the situation even after massive election-year government-led short-term employment in infrastructure projects, which the government claimed helped to add 5000 jobs in the past year. These short-term jobs will disappear as soon as the projects reach termination date. Government-led growth is only good in as far as there are policies to foment a concurrent and follow-up private-sector-led growth…..there is nothing to show that this is even contemplated. There is nothing aimed at making Belize more competitive with a low-tax, high productivity environment required for taking advantage of and significantly growing both services and production industries. What sense does it make to choose services over production, when we can have and need both?
d. “Accordingly, with this proposed budget, my government will harness the resources of the nation to provide additional salary increases for public officers and teachers, and to further enhance the quality of health care, education and national security. In addition, the budget will continue the countrywide construction and reconstruction of sporting facilities, bridges, roads and highways, streets and drains.” ~ budget speech excerpt.
This, along with direct food subsidies, mortgage write off’s, Christmas cheer, Mothers Day cheer, Back to School direct grants, free tablets for tertiary schools….is a powerful politico-economic formula for high visibility investments that reach voters on a personal self-interest level….this is first and foremost about winning elections….it is not so much about building a solid, sustainable economic foundation for Belize. We are harnessing loans….not the resources of the nation. It is the same BORROW AND SPEND politico-economic formula that was used since 1984, albeit at rates and terms that are now much more favorable than before.
A budget that would seek to harness the resources of the nation would move us closer towards a low-tax, highly competitive and productive enabling investment environment….this budget does nothing to advance such objective. It must be a difficult thing for the unions to object to this budget and its principal enabler, the PetroCaribe facility….when their pockets are being lined with the spoils of electoral victory….especially in the shadow of a lack-luster, bland and uninspiring opposition alternative….whose “change begins now” anthem is viewed by the majority of people with skepticism….most believing that the only change they seek is to get their hands on the reins of the same colonial-style special-interest, corruption-based, importation-favored economy.
The fact is, both major parties are serving the same status quo puppet-masters and their zero-sum frame of mind….one of the reasons why the budget debate in the House of Representatives is more about drama, rhetoric and scandal than on raising substantial questions relative to competitiveness and productivity, which would require that they offer alternative, specific proposals for fiscal, monetary and judicial reform to achieve that objective….and which is really what is necessary to allow the people of Belize (especially the large youth population) to sustainably harness the resources of the nation for widespread improvement in their standard of living…rather than government grabbing up a larger share of the economy so they can live high off the hog and pander to individual interests with hand-out dependency programs that only serve to deter individual initiative and to increase poverty….while a favored few have their cups overflowing.
e. Thank you Taiwan….for your $20m annual grant to Belize, to help us plug the leaking holes in our government-led, debt-driven, importation-oriented economy….will this budget support program ever come to an end? hmmm
This article was written by Richard Harrison, Belizean investor in production and services businesses in Belize. He holds a Masters in Business Administration degree from Lancaster University
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