Cost of old wineskins
In recent months, Government has shed more light on the state of its finances. Barbadians have been able to glean some insight into some of the primary drivers of the inordinately large public expenditure which has dwarfed tax revenues and ballooned the fiscal deficit since 2008.
Earlier, the Minister of Transport and Works revealed that the Transport Board was likely to record an operating loss of nearly $70 million for the second year running. During the preceding week the Auditor General drew national attention to the millions of dollars in profligate spending by the Barbados Water Authority, an organisation which provides an essential service but continues to place considerable pressure on Government’s finances.
Not long after, it was disclosed that in less than four years, Barbados accumulated $150 million in arrears to the University of the West Indies. Motivated by the necessity to explain this aberration, two Sundays ago, Minister of Finance Christopher Sinckler seized the opportunity of a DLP branch meeting in St. James to offer the public some perspective on this very important matter.
Sinckler stated that it now cost Government about $170 million a year to cover the economic costs and tuition of Barbadian students of the UWI. Even more alarming, the Minister went on to reveal that for the nine years prior to 2007 the Government of Barbados paid the UWI a total of $543 million, but its financial obligation to that institution grew to $510 million for the three-year period, between 2007-2008 and 2010-2011. This translates to an increase from an average of $60 million to roughly $170 million a year or to $128 million a year, if you consider that the minister’s reference period (i.e. fiscal years 2007-2008 and 2010-2011) sums to four years rather than three.
It therefore means that since 2007, Barbadian taxpayers have been called upon to fork out (at least) an additional $70 million annually to provide Barbadians with a university education.
Some of you may recall that during his Budget presentation this year, Minister of Finance Christopher Sinckler told Barbadians that between 2008 and 2010 the transfer to the Sanitation Service Authority increased by $30 million due to significant growth in demand for the waste treatment services of a private sector facility. The waste treatment facility, which was contracted by the Arthur Administration to reduce the volume of garbage going the landfill, has been in operation since 2008. Sinckler noted that the facility is providing an essential service. To help cover the growing cost of this new essential service, Government proposed the introduction of “a small greening levy”.
What is the point of all of this, some of you may ask? These recent revelations of the factors driving the growth in Government expenditure since 2008, accounts for over $175 million a year in additional public expenditure. I have not even mentioned the increased costs associated with transfers and subsidies to statutory corporations like the QEH, BTA, CBC, BADMC or the $24 million negotiated wage increase in early 2008.
For some time now it has been widely accepted that the Government is grappling with a fiscal crisis that presents notable cash flow challenges. However, the true character of Government’s transfers and subsidies has been opaque. Though the complete story of Government’s post-2008 expenditure is still untold, these revelations present us with a number of important facts – expenditure growth is even more structural than previously thought. Significant legitimate financial demands on Government have arisen from education, health care, sanitation, tourism etc., with a large proportion of the rampant growth in expenditure either beginning in 2007 or attributable to policy positions taken by the previous Administration (for example, waste treatment, debt servicing for the prison and increasing enrollment at the Cave Hill Campus of the UWI).
I am not at all attempting to be an apologist for the Government; I have been strident in my advocacy of the need for the current Administration to take strong action to reduce current expenditure in its effort to reduce the fiscal deficit. The hitherto information vacuum on the substantial growth in expenditure since 2008 enabled the Opposition to frame the narrative on the state of public finances in Barbados.
Indeed in the absence of a strong case by the Government, any objective look at Barbados’ public finance reports indicated that public expenditure grew significantly in 2008 and 2009 or rather fiscal years 2007/2008 and 2008/2009. This created the impression that the Thompson and Stuart Administrations unwittingly mismanaged Barbados’ public finances by indiscriminately increasing current expenditure. However, the recent revelations seem to paint a different picture.
For instance, transfers and subsidies which stood at $820.6 million in fiscal year 2006/2007 grew by $157 million (19 per cent) in fiscal year 2007/2008 and again in fiscal year 2008/2009 that category of expenditure grew by $159 million (16 percent) to reach $1.1 billion. Yes you read it correctly, billion!
Similarly, in fiscal year 2007/2008, wages and salaries rose by 16 per cent while expenditure on good and services was increased by 37 per cent. What’s the significance of this? When you consider that transfers and subsidies account for 40 per cent of Government’s current expenditure, wages and salaries account for 30 per cent, goods and services account for about 12 per cent and interest on debt accounts for 18 per cent; then you can appreciate that the substantial increases in transfers, subsidies and salaries which occurred in fiscal year 2007/2008 did not have a trivial impact on Barbados’ public finances.
It would now appear that the DLP Administration is not a feckless government which came to office in 2008 and went on some expenditure frolic for political patronage. New information has come to light; I am compelled to admit that the Arthur Administration appears to be as responsible as the Thompson and Stuart Administrations for Government’s bloated expenditure and concomitant fiscal crisis. However, it is also reasonable to conclude that the current Government must take a larger share of the blame for failing to move with alacrity to restructure Government, its statutory corporations and comprehensively reform education, health care and public transportation. This is the only way that Governments’ fiscal crisis can be effectively resolved. Yes, the aforementioned national challenges are not new, what has changed is the economic environment and the demand for the State’s essential services.
In recognition of what’s at stake, Minister Inniss reformed the Barbados Drug Service, saving tax payers tens of millions in the process. Though Minister of Finance Chris Sinckler has advocated a credible framework for reducing the cost of universal access to university education, no firm action has been forthcoming. Worse yet, no credible plan has been proposed to stop the rot at the Transport Board. For the most part Government has failed to seize the moment to restore Barbados’ economic fortunes and the Opposition is yet to tell the country how they would solve these pressing challenges. Both political parties have a lot to answer for in the next general election.
Carlos R. Forte is a Commonwealth Scholar and Barbadian economist with local and international experience. C.R.Forte@gmail.com