Maroc - NEWSDAY.CO.TT - A la Une - 08/Oct 05:15

The price of fiscal laxity

TREVOR SUDAMA TODAY, THIS country is facing a serious fiscal imbalance with government revenues on a secular decline as a result of the reduced availability of hydrocarbon resources. However, demands for increased public expenditure have been unrelenting. Thus far the government has relied on increasing debt, both internal and external, and on drawdowns on the dwindling reserves to maintain current levels of expenditure. These are diminishing options in the future. This fiscal conundrum has not developed overnight. It has been the consequence of decades of governance deficits and compromises, condonation of and participation in financial irregularities and corruption and a cavalier attitude to public financial management. Institutional deficiencies and incompetence have also played a significant role. These failures have been a feature of both PNM and UNC administrations. It is necessary to delve into our historical experience to highlight the flawed system of governance and decision-making and the perfunctory attempt to secure the public purse in order to make the point that a society that does not learn from the errors of its past will be doomed to repeat them. The fact is that the governing elites and the general public seem to have learned few lessons and taken fewer corrective measures over the years to maximise revenue returns and minimise excessive and profligate spending and irregular, questionable and corrupt expenditure. For a population of just over one million, we have received over the decades a huge amount of public revenues including being the beneficiaries of three energy windfalls. Moreover, the Treasury has forgone tens of billions of dollars in revenues through an inability or disinclination to enforce basic compliance with the taxation obligations of local individuals and businesses. More significantly, there have been instances in which the government entered into flawed contracts with foreign nationals for the exploitation of local resources, whether through production-sharing contracts, transfer-pricing mechanisms or the formula for NGC’s transactions with upstream producers and downstream purchasers. Then there was the sale of our energy assets to foreign oil companies for a song, eg the Tesoro transaction. In addition, there were instances of excessive payments for assets purchased from such companies, eg acquisition of Texaco Trinidad Inc in 1993. The result was the deprivation of the Treasury of many billions of dollars in revenue. Finally, there were the unrestricted operations of corrupt actors such as John O’Halloran and others who were able to redirect to their private accounts tens of millions in revenue due to the Treasury. However, the most egregious assault on the Treasury has been the indiscriminate, reckless and freewheeling pattern of spending which resulted in the swift depletion of fiscal balances. There was the failure to properly screen projects and to insist on transparency, wide consultation and realistic cost-benefit analyses prior to final public investment decisions, both for economic and social infrastructure projects. After projects were initiated, there was a failure to develop proper accounting, monitoring and oversight mechanisms and real-time auditing and reporting systems to control expenditure and identify breaches, irregularities, mismanagement and corruption. Cumulatively, the haemorrhaging of public funds would have amounted to many billions of dollars for which the country derived little or no benefit. The burning question therefore is: had the governments over the years managed the public finances with a modicum of prudence, discipline, resourcefulness and thought by maximising revenues, judiciously controlling expenditures and minimising wasteful, feckless imprudent and corrupt spending, would the country have found itself in its current fiscal predicament? Could the fact that the authorities were unable to practise a basic level of fiscal responsibility and were able to get away with it point to a cultural deficiency? Comparisons may be invidious. Yet, one is inclined to point again to the experience of Norway. Fifty years ago it had a population of over three million, TT’s being just over one million. The Scandinavian country had a few advantages. It had a somewhat greater diversity of resources and a more viable industrial and agricultural base. However, it benefited from an oil windfall later than TT did and invested most of it in a Sovereign Wealth Fund, utilising the interest obtained to support public expenditure. Today, Norway’s Sovereign Wealth Fund is in excess of US$1 trillion. Our Heritage and Stabilisation Fund is just about US$5 billion. The post The price of fiscal laxity appeared first on Trinidad and Tobago Newsday.