– responding to Winston Jordan, former Finance Minister, on budget 2021
Former Minister of Finance Winston Jordan, on his social media page, posited that the budget 2021 did not contain any increases for public servants. Let’s understand why by examining the situational context of the budget.
The national budget for 2021 is the largest budget: $383.1 billion. This budget did not increase taxes, neither did it introduce any new tax measures. It instead dismantled some additional burdensome tax measures instituted by the former Finance Minister during his tenure. Budget 2021 allocated, for example, $53 billion for the healthcare sector, which includes healthcare infrastructure and $25 billion for transformational infrastructure, to name a few key projects. These two critical allocations alone represent 20% of the entire budget, which indicates a complete reorientation of the national budget towards focusing more on capital projects or productive activities. This is necessary to advance the Government’s ambitious transformational agenda.
Now, in order for public servants to be granted increase in wages and salaries, one has to first understand and appreciate where the money comes from to pay public servants’ wages and salaries in the first place. In this regard, public servants’ wages and salaries are essentially paid from the taxes earned in revenue by the central Government, which is paid by the private sector businesses.
In this regard, private sector corporate and income taxes account for approximately 70% of total Government revenue, and this represents approximately 7.3% of total private expenditure (total private expenditure includes private consumption and private investments). Hence, for there to be increase in public sector wages – which needs to be a sustainable juxtaposition with the fact that the non-oil economy contracted by 7.1% in 2020, owing to the COVID-19 pandemic coupled with the political impasse in 2020.
The resultant effect of this is such that income and corporate tax revenues from the business sector had contracted, and therefore, an increase in public servants’ wages would not be practical in the 2021 budget. As such, the 2021 budget therefore needs to focus on economic recovery, which is in fact the thematic focus of the budget.
Economic recovery means putting the productive sectors back to work. By doing so, this will encourage more investments within the private sector and private sector expansion, which will in turn generate more taxes in the form of income tax paid by employees who are employed by the private sector firms, and more corporate taxes from the private sector through wealth creation. It is therefore crucial that this is facilitated through the 2021 budget, after which, in 2022, the central Government can be in a better position, having repaired the productive sectors and diversified the economy. In so doing, any increases granted to the public sector can then be sustainable in the form of increased revenue through corporate and income taxes, among others paid by businesses operating within the productive sectors.
The summary of this quick analysis is this: wage increases need to be sustainable. Public servants’ wages come from taxes paid by businesses operating in the various productive sectors. Therefore, to facilitate public sector wage increases, it is imperative to rebuild the productive sectors and diversify the economy in which private investments can be facilitated. Then this will generate new wealth from which taxes are paid.
The transformative infrastructure projects will be financed largely by borrowing from the domestic capital market and from external sources. It is not prudent to borrow to pay wages and salaries, borrowing to finance, simply because it would not be sustainable. Borrowing to finance developmental projects, on the other hand, is necessary because it can, in turn, contribute to job creation and wealth creation through commercial and industrial activities.
This analysis will be continued next week, and the data in the table will be expounded upon in context…
About the Author: JC. Bhagwandin is the Chief Financial Advisor/Analyst of JB Consultancy & Associates, and lecturer at Texila American University. The views expressed are exclusively his own, and do not necessarily represent those of this newspaper and the institutions he represents. For comments, send to [email protected].
