Pardon me if I seem to underestimate Saint Lucian intelligence. I swear my intentions are good. And so, with mutual trust, let us proceed: By definition capital expenditures are expenditures creating future benefits.
A capital expenditure is incurred when a business spends money either to buy fixed assets or to add to the value of an existing fixed asset with a useful life extending beyond the taxable year.
The counterpart of capital expenditure is operational expenditure: the money a company spends on an ongoing day-to-day basis to run a business or a system. Depending on the industry, these expenses can range from the ink used to print documents to the wages paid employees.
Government expenditure (like expenditure by private sector companies) can be categorized into either current expenditure or capital expenditure. Current expenditure is recurring spending; that is, spending on items that are consumed and only last a limited period of time—items that are used up in the process of providing a good or service. In the case of the government, current expenditure would include wages and salaries and expenditure on consumables—stationery, drugs for the health service, bandages and so on.
Capital expenditure for a government would include, for example, the building of new roads, new hospitals, the purchase of new computer equipment. The breakdown between current expenditure and capital expenditure is very important. Capital expenditure has a lasting impact on the economy and helps provide a more efficient productive economy. For instance, a new hospital will be much more efficient and allow more patients to be treated for many years into the future.
With current expenditure, however, once the money is spent, that’s it. Finito! It’s gone and the effect on the economy is simply short-term. Therefore, governments have to be particularly careful to strike the right balance between current and capital expenditure. By all Saint Lucia’s prime minister divulged during his most recent budget presentation, the fiscal position of the central government nose-dived in 2011, thanks to a significant increase in capital expenditure.
The overall fiscal deficit widened from $165.5 million to $254.4 million—equivalent to 7.6 percent of current GDP. Capital expenditure increased by 34.8 percent to $402.6 million, “representing a record level by the government in any given year.” Meanwhile, total revenue and grants amounted to $928.8 million, representing an increase of 6.3 percent over the previous year. This increase resulted from higher collections of current revenue, which grew by 6.1 percent, owing to better collections of income tax, hotel accommodation tax and taxes on imports. Total expenditure increased by 13.7 percent to an estimated $1,183.3 million. Of this total, current expenditure grew by 5.1 percent to $780.7 million, driven by increased spending on current transfers, mainly in the form of subsidies, higher interest rate payments and outlays on goods and services. The level of public debt rose to $2,273.2 million, representing a debt-to-GDP ratio of 68.5 percent at the end of 2011. The increase in total public debt was due “entirely from increased central government borrowing as the stock of debt guaranteed by the central government declined by 9.3 percent.”
The prime minister acknowledged that the government had last year borrowed “some $33 million dollars to meet recurrent expenditure,” thereby further demonstrating its inability to generate enough revenue to meet recurrent expenditure, by the prime minister’s measure “a recipe for disaster.” Additionally: “Wages and salaries are projected at 13 percent of GDP or 48 percent of current revenues. This means that for every dollar the government raised from taxes, 48 cents go toward paying salaries and wages.” Small wonder, observed the prime minister, the fiscal deficit is growing at an alarming rate. Between 2007 and 2011 it had increased “fourfold.”
The prime minister revealed that the deficit was being financed “entirely by borrowing from both domestic and external sources—resulting in unsustainable increases in public debt.” With the total public debt-to-GDP ratio at 68.5 percent at the end of 2011 and projected to rise to 68.9 percent at the end of March 31, 2012, he said, there was clearly a need to place the deficit and hence the debt on “a more sustainable trajectory: we simply have to cure the fiscal deficit and cure it quickly.” And how precisely did he plan to do that? He would “address” the rise in spending on personal emoluments. The salaries and wages bill of Central Government have increased by 37 percent over the last five years, he said, “growing at an average rate of over 7 percent a year.”
The prime minister recalled the OECS Monetary Council’s warning that governments should aim to incur overall fiscal deficits of not more than 3 percent of GDP. “At 7.6 percent of GDP in 2011-12,” he pointed out, “the overall fiscal deficit for Saint Lucia is more than twice the recommended level.”
Obviously the “recipe for disaster” earlier referred to had already delivered the inevitable! During a recently televised interview the American business magnate and philanthropist Warren Buffet advised that he could end the US deficit almost overnight by passing a law that “anytime there is a deficit of more than 3 percent of GDP, all sitting members of Congress are ineligible for re-election.”
Might such a law similarly impact our own 7.6 percent-and-rising ratio? Consider this from an ancient budget address, on the perennial problem of financing Saint Lucia’s seemingly insatiable public service: “The 67,000 children and young persons now between ages one to nineteen years are our responsibility. We brought them into this world and we must make provision for their education and employment This calls for dedication and sacrifice. We cannot get out of the system more than we put in. Our wage and salary demands must therefore be realistic, be they made against the industry, business or the government. Hundreds of businesses, large and small, have retrenched thousands of workers, and this is not confined to the Caribbean.There are similar manifestations in the countries to whose governments we traditionally looked for aid.”
If the underscored circumstances remind of current-day Saint Lucian life, rest assured this is mere coincidence. The preceding was taken from John Compton’s 1992 budget address and refers to then on-going negotiations between the government and the public service unions. Now consider the following: “Mr. Speaker, you will note I have not made any provision for increases in wage and salary rates . . . This is not an accidental omission. It is not my wish to compromise the negotiations between the government and the public sector workers . . . However, it would be remiss of me not to emphasize the critical nature of these negotiations.
Wages and salaries together make up around 52 percent of the current budget, the single largest component of current expenditure. The nature, direction and magnitude of fiscal policy are inevitably connected to wage-related decisions. This round of negotiations is critical because of the delicate state of the economy . . . the fact is the economy has been in recession . . . Whatever we do, development on a sustained basis must not be jeopardized. Some breathing space is still required for the fledgling green shoots to take firmer root and to mature.”
Again, the preceding suggests a situation of recent vintage. Another telling coincidence. In truth it was lifted from the prime minister’s 1998 budget address. Which goes to prove yet again that in this part of the world (apologies to John Baptiste Karr) the more governments change the more things remain the same. Remarkably, the same prime minister had in his most recent budget speech observed that public sector wages and salaries in 2011 amounted to “48 percent of current revenues,” by his reckoning an all-time high. Clearly he had forgotten that back in 1998 public sector wages and salaries had swallowed up “around 52 percent of the current budget.”
Incredibly, there is also this: “The entire public service must be the subject of an in-depth examination to ensure its function of delivering efficiently the government services to the public without being a burden and an impediment to the development of the state. The public service unions must be prepared to accept that the days are over when they could make demands far in excess of the growth in the economy . . . The government does not print money. The government must earn money and use some of it for its own development and the maintenance of essential services. The economic principle by which we must be guided is that enunciated in simple terms by Charles Dickens’ Mr. Micawber: “You earn ten dollars and spend nine, the result is happiness. You earn ten dollars and spend eleven, the result is misery!” There can hardly be a regular reader of these columns who would not immediately recall the Micawber line was delivered by John Compton, so often have I quoted it to underscore the madness that is living beyond our means. It comes from the prime minister’s 1995 budget address, two years before the arrival of Kenny Anthony. In any event, isn’t it up to our elected representatives to ensure the “Micawber principle” is adhered to—regardless of union demands? But let us return to the most recent budget presentation and the day’s reality: “Over the past five years the former administration borrowed a total of $949 million. If the $70 million approved by this House in the last session is added, the debt rises to $1,019,130,300. At December 31, 2006 the total public debt was $1.62 billion. Just over five years later it is $2.27 billion, an increase of approximately $648 million over the net debt amount, an increase of about 40 percent over the 2006 figure. The result is that we have inherited a fiscal deficit of 7.6 percent of GDP, or around $254.4 million. And the higher the deficit, the higher the borrowing.” For more than one reason, said the prime minister, the existing situation was especially worrisome. Unsustainable debt ratios can be a brake on growth and negatively affect a country’s credit worthiness . . . “Unless borrowed funds are used effectively and efficiently to generate real growth, the additional debt can be burdensome.” Hardly a novel notion, hardly news! He repeated himself: “Nearly 23 cents on the dollar in our recurrent expenses currently go toward debt financing, the second largest block of spending after salaries and wages. In effect, from every dollar 71 cents go toward the payment of wages, salaries and debt!” To borrow from one of the present prime minister’s predecessors, “words, words, words!” Words that serve only to take us back to the future. As I write the atmosphere is heating up from the fiery exhalations of union leaders demanding pay increases for irate public servants. As if further to stoke the fires, there has been a public announcement of a suggested 30 percent increase for government ministers. It has not helped that the prime minister’s press secretary, whose main preoccupation appears to be the dissemination of scripted government announcements, recently revealed on TV that her negotiated salary was close to that of an MP. In fairness, it should also be pointed out that her immediate predecessor was paid some $600 more by the previous government. Hardly a day goes by without desperate voices denouncing on the radio contracted government personnel who appear to do little more than collect their tax-funded monthly salaries plus entertainment, phone and other allowances. So much for the prime minister’s acknowledgement last April that “any serious effort to curb the increase in current expenditure must address the rise in spending on personal emoluments.” More recently he further confused the issue by agreeing expenditure cuts might be useful, but not if it meant having to send some public servants home, an idea he had not always considered absolutely abhorrent, as we shall see. Especially galling for the government’s critics is that more than a few of the announced new appointments are best known for their activist parts played out on the steps of the Castries market and elsewhere over a 5-year campaign period. The government has also taken on board so-called consultants whose functions remain classified information. Also baffling on several counts was the appointment of the prime minister’s advisor on national security—a former police commissioner whose record as the nation’s premier crime fighter had left much to be desired. Following a clash with the Stephenson King administration that was famously settled in court in his favor, the commissioner resigned then negotiated a far juicier arrangement with the new government! What an irony that while the private sector—ostensibly our wealth generator—suffers the crippling consequences of the nation’s economic paralysis, including the closure of several businesses, businesses on the brink, dismissals and rotations; while many employees have in their own best interests taken pay cuts, some voluntarily—as have public servants throughout Europe and the United States—local public sector unions are yet again demanding pay increases for their relatively pampered job-secure membership. So far the unconfirmed word is that the government is refusing to deliver. Rumors abound as to what awaits. One thing for certain, whatever happens will be nothing new, nothing surprising—or in the nation’s best interests. This is all déjà vu. We’ve been there before, always with predictable results. While so far the opposition has strategically been more or less silent, it would surprise no one to hear them egging on public servants to demand their due—as if indeed the argument were over whether they deserve more money and not where the money will come from in any event. So it was in 1979 when John Compton was caught up in a Mexican standoff with a campaigning Labour Party self-interestedly encouraging angry public servants at election time to stand firm behind their demand for higher wages. Finally, at a historic meeting in William Peter Boulevard attended by placard-bearing jeering thousands and a squad of armed SSU personnel, an exasperated Compton issued his now famous response: “Even if you held a gun to my head, I still could not pay what you’re demanding.” So it was, too, in 2009, as evinced by a Clinton Reynolds report that at the time had doubtless served the opposition party. It remains easily accessible on YouTube, a possible embarrassment to the government in its present circumstances. This was how Reynolds introduced his story, filed on April 27, 2009: “Kenny Anthony has been out of power for the last two-and-half years and now he wants back in. The opposition leader and his Labour Party were adding fuel to the fire Thursday night, supporting the industrial action taken by government workers who are demanding that the UWP administration pay a seven-and-a-half percent increase due this month. Dr. Anthony says the public must move with the SLP quickly to get the government out of office before there is nothing left to govern.” Attired in full party regalia, the party leader is featured addressing an audience from the steps of the Castries market: “We have to think hard about hastening the demise of this government, saying to this government it has broken its trust with the people of Saint Lucia. It has destroyed their lives and the time has come to go. As for me, after two-and-a-half years in purgatory, I am ready again to lead this country and take it where it should go.” (In Roman Catholic doctrine purgatory is a place or state of suffering inhabited by the souls of sinners who are expatiating their sins before going to heaven.) The now agriculture minister and MP for Vieux Fort North, Moses JnBaptiste, also prominently features in the Reynolds video. Following is part of what he said on the remembered occasion: “If you have a relative who is a worker, you need to go home tonight and explain to them that the United Workers Party will never be a friend of the worker, that the United Workers Party hates the worker, that the United Workers Party will do everything to trample the rights of workers.” JnBaptiste had also underscored the difference between the incumbent UWP and the former government when it came to dealing with public sector workers and their unions: “Dr. Kenny Anthony would sit down with the workers, explain the situation and come to a compromise. You hear them tell you now this is political. It is because they have no damn respect for the workers in this country. And if when you don’t respect people and they take action you call it political, so be it.” Finally, Reynolds returns to the party leader who had earlier demanded not only that the government prove its inability to meet the workers’ demands but had also suggested the means by which to fulfill them: salary cuts for particular government personnel, beginning with the nation’s two UN representatives. “When you add up the salaries of Sarah Flood and Donatus St. Aimee,” said Anthony, “it costs the government every year $876, 000 . . .” He threatened that “if the government imposes any new taxes on the workers so as to meet their wage demands it will have to answer to the Labour Party.” Considering his present circumstances, might Dr Anthony take his own medicine and reduce the salaries paid St. Aimee and Flood’s UN replacements? (Speaking of which, here’s something to chew on: annual salaries and wages for the UK mission amount to $1.5 million.
For Washington and New York the figures are $1 million and $1.8 million respectively. The total amount paid overseas missions personnel is a staggering $10 million—which does not take into account such incidentals as the unforgettable Helenites Building fiasco, property taxes, lawyers’ fees, and so on!) Although the Stephenson King government had underscored its rock-and-a-hard-place situation in 2009, with the prime minister dramatically stating there was only two million dollars left in the government’s kitty, shortly after the recalled SLP meeting he caved in and—recession be damned—handed public servants a fourteen-and-a-half percent pay increase. Meanwhile the latest word from Kenny Anthony is that he has “absolute confidence in the government’s negotiating team.”
He has nevertheless warned that talks with the public sector union representatives “must be underpinned by a shared interest in protecting the country.” And so, here we go again, one more time around the familiar mulberry bush! Use pics Kenny, King, Vaughan, Compton pn page 5