Response to Prime Minister Kenny Anthony June 10 2014 speech

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Response to Prime Minister Kenny Anthony June 10th Speech. Very Intreresting

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Response to Prime Minister Kenny Anthony June 10 2014 speech

  1. 1. “FACING THE OPTIONS” ADDRESS TO THE NATION BY THE HON. DR. KENNY D. ANTHONY PRIME MINISTER & MINISTER FOR FINANCE, ECONOMIC AFFAIRS, PLANNING & SOCIAL SECURITY Tuesday, June 10, 2014 Comment [G1]: Dr. the Hon.
  2. 2. 2 My fellow Saint Lucians, Ladies and Gentlemen, Good Evening. INTRODUCTION: THE CHALLENGES WE FACE When I delivered my 2014 Budget Statement in Parliament on Tuesday, May 13th, I set out to explain, as clearly as I could, the challenges confronting our country. If you recall, I stated then that we are facing four, fundamental challenges, namely (1) low economic growth rates, (2) persistently high unemployment, (3) high vulnerability to economic and natural shocks, and (4) fiscal deficits and high debt levels. In that Budget
  3. 3. 3 Statement, I also stated the measures that our Government was taking to address these issues. Tonight, however, I want, in this address, to focus on the fourth of these fundamental problems – our fiscal deficit and our high debt levels. Both of these issues impact the cost of the operations of the Government. GOVERNMENT OPERATIONS UNSUSTAINABLE For some time now, Government has been spending much more than it collects in revenue. The result is
  4. 4. 4 that Government has had to borrow more and more money to finance its operations. Unfortunately, more of Government’s revenue has had to be directed towards paying salaries to public servants and repaying its debt. This, as most of you would agree, is neither healthy nor prudent. Sadly, we have now arrived at the point where the operations of Government cannot be sustained in the long run without some form of adjustments. Our administration started to address this growing problem last year with some strong measures. We have had some successes but our successes are not Comment [G2]: So what was the purpose for making the fuss about a 6.56% OVERALL DEFICIT that your government inherited in the year ending 2011/12? Your government created a much larger one in 2012 of 9.2%! Or, are you seeking to show that we were accustomed to current deficits as well? No sir, it has been over 2 decades since this country last suffered a current deficit. The $52M in 2012 was the first in a long time.
  5. 5. 5 enough to resolve our difficulties. As I indicated during the just concluded Budget Debate, in 2013 we were able to narrow the overall deficit, that is, the difference between the money we make and the money we spend, to $208.8 million, compared to $328.8 million the year before. We reduced the overall deficit-to-GDP ratio to 5.7% from a figure of 9.2% in the previous year. Additionally, we significantly narrowed the current account deficit to $1 million, from $52.6 million in 2012/13. These adjustments were possible primarily because we undertook a strict streamlining of capital
  6. 6. 6 expenditure. We reduced spending on Goods and Services, Utilities, Supplies and Materials, and Communication, in addition to decreasing transfers and subsidies to statutory boards and other government agencies. There was also a major adjustment of $26.8 million in Capital Expenditure. On the revenue side, we realized better revenue performance due to a widening of the tax base, through the implementation of the Value Added Tax or VAT. Despite these improvements, we are still outside of the recommended ranges. Our overall deficit, which Comment [G3]: You once said that due to the credit crunch you could not borrow monies to grow the economy. So why now are you calling it streamlining of Capital Expenditure? Comment [G4]: You just could not borrow the monies. Same as comment G3 Comment [G5]: That is true, you collected more tax even when Private Consumption started falling from 2012 when you issued your first budget. Private Consumption continued to drop in 2013, this time by $51.6M.
  7. 7. 7 currently stands at 5.7%, needs to be in the region of 3% and lower. Our Debt-to-GDP ratio of 73.6% should be no higher than 60%. Most of the studies that have been done indicate that whenever the debt-to-GDP ratio is higher than 55%, it hurts the growth prospects of the country. Additionally, large deficits and high, unsustainable debt mean that your debt service needs are so large they restrict the money you have available to spend on development programmes. Also, they crowd out private investment, and they bring with them an increased risk of fiscal distress, which, in turn, increases the cost of financing that debt. It is a vicious cycle that Comment [G6]: Please don’t make a song and dance over overall deficit. It was 7.10% under your watch in 2005 and we did not have a crisis or even a current deficit. Bringing overall deficit down to 1% will not change our lot cause you are going to continue to spend heavily on social programs that will cripple the economy AGAIN. Comment [G7]: Thank God there was a credit crunch otherwise it would have been 90% or more and you would have told us that this is normal in post global recessionary periods. Singapore went as high as 120% in 2010 when it sought to rebuild its economy. Comment [G8]: That is not entirely correct as many countries raised huge debts high above 100% after the crisis and subsequently achieved growth because they spent the monies in the right places to get growth from the correct expenditure of the debt money. That rule/standard would certainly have to apply in normal times. Comment [G9]: Private Investment is NOT being crowded out as we the banks are highly liquid and local investors are not investing. The problem with the domestic investors lies with the perpetual drop in private consumption. Their response is to hold lower stock levels and reduced output, they are not calling for more funds in this current situation. They want to be convinced that your fiscal measures are going to cause private consumption to rise again so that they can make some money. They can’t make money if people are not spending and are losing their jobs!
  8. 8. 8 no Government wants to find itself in. Unfortunately, this is where many CARICOM countries presently find themselves. These problems are magnified because of the size and openness of our economies, our vulnerability to shocks, and our very limited resource base. Just look around us for a moment to understand the scale of the problems. In the past few years, many of our CARICOM neighbors have not been able to pay their debts and had to engage in debt restructuring. Debt Comment [G10]: According to IMF data, most Caribbean countries started a slow recovery from 2009 and are doing much better now save Saint Lucia. The CDB has projected growth in Barbados, Dominica, Grenada, Anguilla for 2014 except for Saint Lucia. They know that we have a peculiar problem grappling with which you have not yet accepted. Stop looking for cover in the woes of regional governments, they are moving on and are leaving us alone in the economic decline boat. Comment [G11]: Sir this a shrub under which you are seeking to hide. Our caricom neighbors like the rest of the world were reeling from the effects of the Global Financial Crisis. No one is saying that recovery must be fast. They, like Singapore, had to take huge debts to resuscitate their economies after the Crisis. Please put this into is proper perspective. While they continue to improve from 2009 albeit slowly; we messed up in 2012 by your new policies and programmes. We were on a growth trajectory and you toppled us over with your fear-mongering, VAT, increased Recurrent Expenditure of $88.81 to a figure which was $29M greater than the 2011 recurrent revenues. And yes, you high levels of ‘zero growth potential’ untargeted social programmes.
  9. 9. 9 restructuring occurred in Dominica in 2004, Belize in 2007 and 2013, Antigua and Barbuda in 2009, Jamaica 2010 and again in 2013 and St. Kitts and Nevis in 2012. Grenada underwent debt restructuring in 2005 and will undergo further debt restructuring this financial year. Indeed, the Government has indicated that investors in Grenada will take a 50% “haircut”, meaning that they have to accept a 50% loss on their investments. These adjustments have led to a very high degree of caution and wariness about investments in Government Bonds and instruments throughout the region. These anxieties are evident on the Regional Comment [G12]: AW! Don’t lump those country’s individual fiscal woes prior to the Crisis with the post crisis realities. I know, you are seeking to concoct the notion that your 2012 mess had its genesis in the regional government woes! According to Lady Spice – “It euh working so”. You made some blunders in 2012 that messed up the fiscal equation, killed borderline businesses and sent hundreds of Saint Lucians home. Those are the facts.
  10. 10. 10 Government Securities Market, which is where we have, in recent years, gone to raise most of our financing. This factor is very important because 20% of our debt portfolio matures in the current 2014-15, Financial Year. So, the most important and urgent question we have to answer is how do we slow down the growth of Public Debt? THE COMPOSITION OF GOVERNMENT EXPENDITURE Comment [G13]: Wrong question. It is not the growth of public debt that is the problem per se; it is the utilization of those monies in areas that don’t grow the economy which would in turn finance their repayments. If you are going to continue to borrow to finance NICE/STEPS and free laptops; Interest payments will choke your recurrent expenditure much to the chagrin of a possible surplus to help speed up the repayment of your debts and finance your capital ‘growth creating’ projects.
  11. 11. 11 To answer that question we have to look at the composition of Government’s expenditure. For the 2014-15 Financial Year, Current Expenditure accounts for 73% of total expenditure or $870 million, while Capital Expenditure is 27% or $315 million. If we break down Current Expenditure, we will see that spending on Goods and Services accounts for 19% or $167 million, while Interest Payments on debt eat up 16% or $137 million. Transfers to statutory entities make up 12% or $105 million, while Wages, Salaries and Pensions are the largest expenditure item at 53% or $459 million. This means the discretionary expenditure component of Comment [G14]: In the assessment of the pressure of the Public Service on recurrent expenditure we never added ‘Retirement Benefits or Pensions’ to Salaries and Wages (See Table 32 Social/Econ Review 2013). Retirement Benefits falls under ‘Current Transfers’. During the budget speech you said that the figure was 48%. When the opposition in Guy Joseph raised the alarm you went in to say that the 48% included pension even when your script referred to the 48% referred to ‘budgeted’ figures for 2013 for Salaries and Wages only. Sir it appears that you as seeking to make us think in a twisted way that the pressure of public servants’ salary on recurrent expenditure has somehow jumped up of that emotional figure of 53%. Now since you have actually referred to that padding in this case; I did an analysis from 2004 to 2013 and found that ‘Wages and Salaries and Pensions’ averaged 53% with the highest 54% and lowest 51%. So there it is again Mr. PM Salaries , wages and pension at 53% of recurrent expenditure is nothing new in our fiscal formula. We have been operating safely with that figure from 2004. BTW…the 2013 value is actually $449M and not $459 according to the Soc. Econ Rev. 2013.
  12. 12. 12 our Current Expenditure is relatively small and does not give us much space to manoeuver. The situation in Capital Expenditure is also very tight. Tourism Marketing is the single largest item, taking up 31% of our Capital Budget or $40 million. We have had to reduce our allocation to Infrastructure to a mere $10 million or 8% of the total, which means the Ministry of Infrastructure will be severely challenged to respond to the many pressing infrastructure rehabilitation and development needs like the repair of roads, bridges, schools and other public buildings. Comment [G15]: Ha. This is the problem. It is your capital expenditures that largely drives growth. It is those expenditures that will FACILITATE the expansion of output by both the private and public sectors. Recurrent Expenditures deals with keeping the government machine alive. Your government would be operating basically on autopilot without a health capital program. Your capital program uses over $24M is areas that DO NOT grow the economy – untargeted social programs.
  13. 13. 13 Already, even with the significant cutbacks we have made to our Capital Expenditure for the current Financial Year, we have a financing gap of $205 million, made up of $129 million on the capital side and $76 million on the recurrent side. In other words, if we stand still and maintain the status quo we will have to raise $205 million in new money for this year. Comment [G16]: Sir who is advising you? I shall repeat. You NEED CAPITAL EXPENDITURE to help grow the economy. Your problem is that you are spending them in the WRONG places. We can’t afford your UNTARGETED SOCIAL PROGRAMS at this point. You are giving parents $500 and a laptop in households that don’t need it. I saw the Prez of the senate at an event where they were dishing out those $500. I think his daughter had entered SJC that year. You can’t get growth from such wasteful spending?
  14. 14. 14 THE CASE FOR WAGE ADJUSTMENT This means, unfortunately, that we have to reduce expenditure in the area that is making the biggest dent in our Budget – Personal Emoluments or Salaries and Wages. Personal Emoluments in the Public Service are currently 13% of our GDP and 53% of Current Expenditure. In effect, for every dollar spent by government, 53 cents is used to pay salaries. Consider a small contractor or a small business or even a large business spending 53 cents on every Comment [G17]: WRONG CASE sir. We need one for the suspension of your UNTARGETED social programs that are financed under Capital Expenditure in favor of more expenditure in the productive sector such as Agriculture and Tourism. Comment [G18]: WAIT! Are you forgetting to your PADDING? The pads that you used to inflate that figure to make it 53% of recurrent expenditure. PENSIONS, sir pensions. Comment [G19]: AIK!!!, I told you that you forgot your PADDING in the last sentence. Personal Emoluments OR ‘Salaries and Wages’ is NOT 53% and has NEVER been 53% of Recurrent Expenditure sir. It has averaged 45% over 2004-2013 with 2012 being 43% and last year 44% of recurrent expenditure. We have endured that pressure for decades sir, don’t mess with the people’s salaries.
  15. 15. 15 dollar that it makes, on wages alone. The chances are that business would not make a profit or for that matter, survive for any length of time. The harsh truth is that the growth in Wages and Salaries in the Public Service over the last ten years has not only been completely disconnected to the growth in our economy, but it has far outpaced the growth in wages in the Private Sector. Indeed, between 1997 and 2013, a span of sixteen years, public officers would have received an overall increase of 39.5% in salaries and wages. Comment [G20]: LOGIC is based on a false premise. The 53% includes pensions which would be ‘other payables’ in a business and NOT a component of expenses that determines profit. A wise business man would expense a small amount for pension each month and credit to ‘Pensions Payable’ to be paid when it becomes due or invested outside of the business. Comment [G21]: I never knew that Salaries and wages was a vehicle for ‘growing’ the economy. Well I am never too late to learn. Please send me the literature. Comment [G22]: Oh oh Sir, that huge figure of 39.5% almost convinced me as you know it did to thousands of Saint Lucians that our Public Servants are somehow overpaid. Well sir, as a student of economics I ventured to do a similar analysis for the growth inflation over the same period and sir, the juxtaposing was quite mindboggling. It might shock you to know that the figure is MUCH larger than 39.5% and stands at 44.47% (See Table 1 below). It means sir that the purchasing power of the public servants are still at the levels that they were WAY before 1997 with NO real improvement. Inflation was eating into those salary increases at a faster rate than they were being made. Sir someone might think that you are seeking to deceive the public servants.
  16. 16. 16 Against that background, I can now address three issues that have been championed by some of our citizens. DO WAGE INCREASES STIMULATE ECONOMIC GROWTH? Some have suggested that there is an economic benefit to these wage increases and that our economy grows when we increase wages in the Public Service. However, the data and the literature suggest differently. Government spending on wages is consumption and the consumption-to-import ratio
  17. 17. 17 is high in small open economies like ours. In other words, when we increase consumption the only real beneficiary is the external market and those who import the items. Government does collect more in Import Duties but the value added through this process is minimal and there is no real production or significant impact on our GDP. In fact, the studies show that Government spending on consumption has almost no impact on growth in small open economies. Similarly, consolidation or restriction on the investment side hurts the growth prospects of the country and is not viable. Common sense Comment [G23]: Are you serious? Then it should be a MUCH BETTER preposition to progressively cut their pay. Sir, your argument is somewhat suggesting that there is greater economic benefit in permanently freezing public servants salaries? One point is correct, that small economies like ours suffer from large volumes of imports due to the fact that we produce few of what we need and use on a daily basis. The solution to this problem is to bolster exports to counter it so that we enjoy a net inflow of money and a net outflow of products and services. That is why we need to encourage buy local campaigns and produce more for the export market and FACILITATE the local production of more of the vegetables that we import for the tourists. Comment [G24]: Which study Sir? And if we don’t fix our export growth, that will be our plight, but the permanent income earners much spend more locally to help the economy. An increase in their income will facilitate that in a small measure. Besides, by your argument an increase in public servants pay is partly financed by import duties revenues. It appears that we should JUST NOT PAY THEM A SALARY AT ALL!! Our issue is to increase productivity. But why should public servants be productive when inflation grows faster than their salaries? Comment [G25]: ??? Where is the link to investment restriction? ???????
  18. 18. 18 suggests that growth should lead wages and not the other way round. SHOULD WAGE CUTS BE RESTRICTED TO UPPER MANAGEMENT? The other recommendation you hear is that a wage reduction, if indeed it has to take place, should be restricted to Ministers, Permanent Secretaries and Senior Management. Again, the reality paints a different picture. The structure of the Public Service has changed very Comment [G26]: That is not common sense but subterfuge sir. Sir, when public servants don’t feel adequately compensated they are going to do nothing, and when they do nothing; you can kiss GROWTH good-bye. Now, given the fact that inflation from 1997 has surpassed the increases that public servants have gotten over that same period; it is FAIR TO SAY THAT PUBLIC SERVANTS ARE CURRENTLY UNDER COMPENSATED. THERE ARE CURRENTLY OPERATING AT PRE 1997 PURCHASING POWER LEVELS. We need to close that gap between overall growth in inflation of 44.47% and overall growth in Public Servants emoluments of 39.5%. Comment [G27]: That is padding. Folks know that the volume of dollars spent on public servants are not concentrated at the top. You are looking for sympathy on this one. But go ahead, do your thingy Sir. Comment [G28]: THAT IS A BETTER CASE FOR THE INCREASE IN THE SALARIES OF MINISTERS THAN ANYTHING ELSE sir. Now you don’t have to go all across the corner for it. Ministers of Government are grossly underpaid and that is a FACT. A minister should be making more than a PS as a rule. So I will support you on this one. Low salaries paid to public officials encourages CORRUPTION. So when you pay your public servants low salaries, they will become corrupt….THERE WAS A STUDY ON THIS ONE TOO…I forget the name of the researcher.
  19. 19. 19 little over the last ten years. Civil Servants account for 31% of total expenditure, followed by Teachers at 20%, Public Service Pensioners at 19%, Police at 10%, workers on wages at 9%, Fire Service Officers at 3%, Nurses at 2%, Correctional Officers at 1%, Doctors at 1%, Top Management at 1%, and 3% categorized as ‘Other’. The ‘Other’ category is made up of officers who are working on Projects, Members of Parliament, Judges and Magistrates, District Registrars, Special Police assigned to protect our Judiciary, Officers in the Electoral Department, and the so-called consultants, a total of 13 .
  20. 20. 20 Let us take the roughly $7,761 monthly salary paid to a Minister of Government as a benchmark. As explained earlier, between 1997 and 2013, Public Officers have received salary increases amounting to 39.5%. However, the salaries of Ministers have remained unchanged since 1998. This is why every Grade 19 Public Officer, or everyone at the level of Deputy Permanent Secretary, currently makes over $10,000 annually more than a Minister. That gap gets much wider when you compare the salaries of Ministers and Permanent Secretaries. So the suggestion that by taking a bigger chunk out of the salaries of Ministers or reducing the number of
  21. 21. 21 Ministers we can solve or help solve our fiscal problem is at best misguided and at worst, innumeracy. But let us go further. If we eliminate all of the salaries from the level of Minister upwards, we would save a grand total of $16.5 million. In effect, we would send home all of the Ministers, all of the Permanent Secretaries, Deputy Permanent Secretaries, Doctors, Magistrates and Heads of Department to realize a saving of less than $17 million. Clearly, the mathematics does not support the political arguments. The facts show that
  22. 22. 22 employment in the Public Service is skewed toward the lower grades, with Grades 3, 5, 7, 9, 10 and 12 accounting for the largest numbers. WRONG TIME TO REDUCE DEFICIT Then there are those who say that this is the wrong time to reduce the deficit. This is the time to pump money into the economy. Surely, by definition, if a deficit exists it means that you are unable to finance your expenses from the money you make. Therefore, you may have to borrow. The reality is twofold; firstly the Debt/GDP ratio of Saint Lucia is already high. Secondly, investors no longer have any appetite to Comment [G29]: NO, no! That is not what we are really saying. We are saying that we need to concentrate MORE on growing the economy as a means of dealing with the deficit. In other words you need to spend (Capital spending) more in the productive areas at this time. Target those expenditures in the productive sectors and suspend your ‘politically painted’ UNTARGETED SOCIAL PROGRAMS. Sir, if you go ahead and cut salaries, Private consumption will fall further and so will revenues. Since your existing capital program is largely social programs, the economy will further contract as Private consumption is key to growth in output. Sir, the tough decision that you don’t want to take is the suspension of the social programming…..that is our door out of this malaise and you don’t seem to have the political temerity for it.
  23. 23. 23 lend Governments in the region on a long term basis. In other words, it is no longer possible to borrow from investors as in the past. We can no longer borrow to finance our deficit; that is our bottom line. So, we have no choice but to reduce our current expenditure. THE AVAILABLE OPTIONS Therefore, unfortunately, the only way in which we can get the reduction in Current Expenditure that we need to put our fiscal situation back on a viable path is to make a cut in salaries and wages across the board. Comment [G30]: No! Suspend untargeted social programs, divert funds to more productive sectors (which will grow output and private consumption and revenues to fix the deficit). Cutting salaries now and maintaining the social programmes will take us back to square one and you will ask for another pay cut? Use a small sunset levy on electricity as Peter Alexander has suggested (not VAT) to get you some more revenues to inject into more productive, high multiplier, capital programs which will set us back to the growth trajectory that you inherited in 2011. The levy should be fixed at an equitable levy that would also finance an increase in the public servant’s salaries so that they can contribute to a improvement in output. You can ensure that most of their increase is spent locally by providing them with incentives like low mortgage rates at the SLDB and SMFC and use some NIC funds to finance Lease to own Homes as Stephenson King suggested.
  24. 24. 24 Three different scenarios were developed. The first seeks to achieve a savings of $37 million, which, if you will recall, is slightly less than half of our Recurrent Financing gap. To realize these savings, we would need to make a 10% reduction in salaries and wages across the board or send home a total of 990 Public Officers. The second option, which would give us savings of $26 million, would require a 7% reduction in salaries and wages or the retrenchment of 696 workers. However, it would still leave a financing gap of $50 million. The third option is for a 5% adjustment in salaries and wages, which gives savings of $18.5 million, but leaves a financing gap
  25. 25. 25 in Recurrent Expenditure of $57.5 million. If the decision is not to embark on a 5% wage adjustment, we would have to terminate the employment of 495 workers. We have said to the Unions and Associations that Government does not want or intend to retrench any workers unless it is placed in a position where it has no other option. We already have a high unemployment problem to deal with and sending workers home only worsens that situation. We think this is a time when all should be willing to make a Comment [G31]: Sir, this is largely math. No wonder PIP called it a mathematical budget! Lol As I have said before, your interventions NEED not to deal with the mathematical aspect of the deficit per se; but rather, to deal with permutations to grow the economy and output which would eventually stabilize the fiscal operations of the government. You must use existing funds in capital expenditures that would grow the economy. Please this is the way that we should go.
  26. 26. 26 small sacrifice to preserve the jobs of their fellow workers. A SPIRIT OF ENGAGEMENT My fellow Saint Lucians, these are the realities that our Government has been explaining to our Civil Society partners in a series of meetings over the last month. These are also the facts that we have been sharing with our Public Sector Unions in the several meetings that have taken place in the Conference Room of the Ministry of Infrastructure. Comment [G32]: Retrenchment is not necessary. The public service has been operating at 45% of recurrent expenditure for a while now….the size is not the problem. The decisions that you took in 2012 that created our mess. You told the country that you inherited a messed up economy and wanted all to make sacrifices to help you fix it. The country was no such state. You got a healthy $236M in the banks. There was growth as early as 2010 albeit small, but good given it was the year after a global recession. The people listened to you and cut private consumption down by about $207M in 2012 and a loss of revenue of $22M. The cut in private consumption also sent borderline businesses into mortality followed by a procession of disasters such as ; loss of jobs, current deficit of $52M, economic decline of 1.3% and private consumption continues to fall each year. Sir, your current intervention MUST have the effect of at least stemming that decline in private consumption. Cutting pay is surely not going to achieve this. Comment [G33]: A mea maxima culpa is owing to the public servants on this one. Incorporating the proposed cut in the estimates in an addendum to what the opposition used to prepare is a MORTAL SIN for which penance is outstanding.
  27. 27. 27 I know that these discussions are not easy. They cannot be, necessary as they are! I want to thank the Public Sector Unions and Associations for the spirit in which they have engaged our Government in these discussions. So far, the meetings have been free of rancor and full of constructive discussion. We have looked at ways in which we can stimulate growth in our economy in the long run. We have discussed ways in which we can reduce expenditure on electricity, communications, and the operations and maintenance of our vehicles and we have shared
  28. 28. 28 with the Unions and Associations the steps and programmes that we have already undertaken in these areas. Similarly, when we met with the National Youth Council, the Media Association and the National Council on Public Transportation, we had lively, constructive dialogues on all of these issues. We spoke about stimulating agriculture and creating new spheres of economic activity. This week we will meet with the Industrial and Small Business Association to continue the discussions.
  29. 29. 29 I wish to reiterate that together with the team from the Ministry of Finance, my cabinet colleagues and I are available to any Civil Society Group that wishes to be similarly briefed on the economy, once appropriate arrangements could be made. Indeed, I intend to continue these discussions on a regular basis with all our social partners to report on our progress on the economy and of course, to seek their advice and counsel.
  30. 30. 30 THE NEXT STEPS At our Meeting on Friday June 6th with the Public Sector Unions and Associations, I presented the Government’s proposals to reduce the fiscal deficit. We have agreed that the Unions will take these proposals back to their membership, obtain their feedback, and our meeting will reconvene on Friday June 13th to receive the formal responses and reactions of the Unions and Associations. At that meeting, I informed the Unions and Associations that consistent with the process we
  31. 31. 31 have embarked on in apprising Civil Society of the current situation, I would be addressing the Nation tonight to extend the conversation to the wider public. Initially, I grappled with the dilemma of whether I should share with you the proposals the Government made to the Unions and Associations or whether I should at least give their leaders an opportunity to engage their workers before putting these proposals in the public domain. I did not want to be accused of preempting the consultation process or muddying the waters for the Union leaders. However, I felt that this matter could not be confined solely to the Government and Public Sector
  32. 32. 32 Unions and Associations. It had to embrace the entire public because all of us are called upon to make a sacrifice of some kind. In any event, I knew that Government’s proposals, as outlined in the letter to the respective Union leaders, would be out in the public domain. Already, I have heard at least one media outlet present these in detail in their news broadcast. Therefore, the debate over whether or not I should state them tonight is, for all practical purposes, now moot.
  33. 33. 33 GOVERNMENT’S PROPOSALS Let me now turn to the proposals which the Government has formally tabled to the Public Sector Unions and Associations. The Government has proposed the following: 1. A reduction of 5% in the wages of Public Officers and all other employees of the Crown, from Grades 4 to 21. This reduction will be levied on gross salaries that is, basic salary plus allowances. The reduction will not apply to the judiciary or the Governor General. 2. The introduction of a wage freeze to cover the current triennium of wage negotiations. Comment [G34]: No Sir, don’t go there! Comment [G35]: Yes, and there to.
  34. 34. 34 3. The introduction of agreed benchmarks to govern further wage increases. To ensure and maintain sustainability, it is proposed that wage adjustments beyond the current triennium should be related to broad macro-economic and fiscal indicators. These should include: (a) GDP Growth Rate of 2.5%; (b) Achievement of a Current Account Surplus of 3% of GDP; (c) An agreed level of inflation; (d)The unemployment rate;
  35. 35. 35 (e) The level of wages in the overall economy as measured by the wage index; and (f) Agreed productivity gains. 4. A Memorandum of Understanding to be signed by all parties to the Agreement to reflect the points of agreement. 5. The establishment of a Monitoring Committee, made up of representatives of the Government and all Public Sector Unions and Associations, to monitor the implementation of the Agreement between the parties. 6. The establishment of a Commission, to be known as a “Spending and Government Comment [G36]: Okay, I have been advocating for something like this but a bit differently. You cannot peg salaries with such broad indicators. That is because the public servants can be penalized or rewarded for situations beyond their control. This case is a good one. The PM went on an unnecessary fear mongering that sent private consumption and revenues cascading the entire stack of fiscal dominoes. Those actions would have caused the public servants to suffer under this proposed formula. Here is my alternative. 1. Set Revenue Collection and Expenditure Benchmarks for government departments that are in keeping with the government’s fiscal needs for the given year. Their reward should be in that sphere with a constant of the year’s inflation rate added to the formula. So it would look something like a linear equation: mx+c = Income. m=rate of achievement of targets. 2. Since the Ministers are the policy drivers for the whole economy with the mandate to deliver good life to ALL; it is their salaries that should be pegged to those proposed broad macroeconomic indicators. 3. I am however leaning to the addition of a small constant in suggesting #1 to cover macro economic trends. So it can be #2 plus (y % of the adjustments to the Ministers Salaries only in the positive direction). So the highbred should look something like Mx+C2+C1 Comment [G37]: Not necessary. Existing protocols can take care of that.
  36. 36. 36 Efficiency Commission”, to advise Government on the most efficient and cost-effective government organizational structure and governing processes. The Commission shall: (1).Review, assess and propose changes to Government and Government corporate bodies and agencies with respect to: (a) the adequacy of the structures in place; (b) operations; and (c) processes for governing;
  37. 37. 37 (2) Review, assess and propose a redesign of the organizational structure of Government in such manner as the Commission may deem appropriate, which may include streamlining or consolidating agencies, authorities and other bodies that have overlapping missions; (3) Identify operational improvements aimed at cost-effectiveness and improved service quality, which may include shared services, enhanced use of information technology and changes in service delivery mechanisms;
  38. 38. 38 (4) Identify inefficiencies; (5) Identify actions that can be privatized or outsourced; (6) Identify targets and other means for measuring efficiencies; and (7) Do all things the Commission may deem necessary to achieve the objectives of the work of the Commission. The idea of a “Spending and Government Efficiency Commission” is not original. In fact, we have borrowed the idea from Bermuda, an island that had to undergo structural adjustments, including wage adjustments in its Public Service. Comment [G38]: Actually, when I proposed this on FaceBook I thought that is was original. Silly me, you are now telling that Bermuda was your inspiration. I remember sitting with a particular government minister on this. No credit to me fine…not required…lol. Can we proceed with other items in my FaceBook suggestion viz. the downsizing of the Ministries of Government. https://www.facebook.com/notes/amatus- edwards/an-idea-for-growth-make-the-public- service-more-efficient/10151554689566031 https://stluciastar.com/an-idea-for-growth- make-the-public-service-more-efficient/
  39. 39. 39 NEED FOR STRONG SIGNALS Fellow citizens, ladies and gentlemen, what we do next as a country will be very critical. All around us we are seeing the carnage that the global Economic Crisis has left behind. There is scar tissue in many areas that will take a long time to fully heal. While we are starting to see evidence of recovery in some sectors, the situation is still very fragile and precarious. We must send the correct, strong signals to the market and to potential investors that we are serious about restoring our economic fundamentals. We cannot ask investors to trust us with their hard-
  40. 40. 40 earned capital if we are not prepared to put our own financial house in order. In my message in our 2011 Elections Manifesto, I stated “the goal of nation building is a long-term exercise” and “we understand there are no quick fixes to several of the problems facing (our country)”. We must without fail, summon the will and courage to resolve our problems. Comment [G41]: Nice words Sir, But you need to confess your fiscal mismanagement of 2012 that got the wound of our recovery patient septic again. Open confession is good for the soul. Well you know that this will end your political life, but guess what? It can start a brand new spiritual life for you. Speak with Este about a new spiritual outlook. Comment [G42]: Ah. I remember the caption was ‘Blueprint for Growth’. But you served us Decline in 2012, Decline in 2013, and given your obstinacy about those proposed fiscal measures; if you have your way, we will be served another year of decline. CDB is not optimistic about your ability to return growth in 2014. They are optimistic about almost the entire Caribbean, but Saint Lucia.
  41. 41. 41 WHY SUCH A POLITICAL RISK? Many people have asked me why are we taking such a huge political risk? Why are we embarking on a course of action that may ultimately weaken our Party’s chances at the next General Elections? There are many who believe that we should not invest so much in correcting our economy. They reason that there is no certainty that the economy will crash if we continue as is, and in any event, given that it is our political future that is at stake, it is a gamble our Government should not take. Comment [G43]: Nice one Sir. You had me rolling on the floor. You are NOT taking a risk here, you are managing the political risk in your favor very well Sir. 1. You and your ministers have blamed the last admin for our present estate while in the same breath appearing to say that it was an ‘act of god’. The country does not know as yet that this was all your fault. So what risk? You are painting yourself as a heart surgeon saving Helen’s life. 2. The tough political risk would be the suspension of your untargeted social programs that was sold in part as your vehicle for creating JOBS, JOBS and JOBS. That is the surgery that the IMF WILL MAKE IF THEY ARE TO COME INTO THIS THEATRE WITH FAIR HELEN ON THE TABLE. Ask Dr. Reginald Darius whether this would not be his recommendation if he was serving on a mission to a foreign country in our situation. Sir, this is the political risk that you refuse to take! You know full well that Fair Helen will not return you to the helm when she discovered that it was you that dealt her that life threatening blow in 2012. Those interventions of yours are not going to solve the problem. It will come back next year at the same time. Comment [G44]: Come on, you are looking for false sympathy. No one ever said that. I challenge you, name that person and I will recant.
  42. 42. 42 However, the Government that I lead does not believe in gambling with the future of our country and its people. We were elected to lead, to govern and to take decisions that are in the best interests of the entire country, not just a few, even if those decisions are uncomfortable and painful. The men and women who serve with me in the Cabinet are not selfishly motivated to put their own political interests over the interests of the country in which they live, their parents lived, and their children and grandchildren expect to live prosperously. Comment [G45]: That is not true. See below for the right things to do (Exhibit 2). Those are the things that may damage your political career. Remember you have NOT taken responsibility for the decisions that you took in 2012 that brought us to where we are today. Please find a piece below about How we got here and the part that your administration played. See Exhibit 3.
  43. 43. 43 This is why we are prepared to trust in the people of Saint Lucia. This is why we are inviting our Public Sector Union leaders and our Public Officers to do the right thing, to do what is in the best interest of our country. We believe in the integrity and the reasonableness of our people. I am confident that if we do what is right, our country will emerge from this stronger, more focused, more resilient and with a determination to never find ourselves in such a situation again.
  44. 44. 44 I pray that God may bless each and every one of us and grant us the strength and the courage to confront these problems squarely and put them behind us. Thank you and good night.
  45. 45. 45 EXHIBIT 1 Table 1-Inflation from 1997-2013 1997 0.00% 1998 2.80% 1999 3.50% 2000 3.55% 2001 2.09% 2002 -0.20% 2003 1.00% 2004 1.47% 2005 3.91% 2006 3.60% 2007 2.80% 2008 7.20% 2009 1.00% 2010 3.25% 2011 2.80% 2012 4.20% 2013 1.50% 44.47%
  46. 46. 46 EXHIBIT 2 Here is what the government needs to do to fix the economy. 1. Review some of the new political appointments that were made in 2012 in the missions and elsewhere. Since those people have hardly grown accustomed to their new and improved salaries, they should be more amenable to a pay cut. 2. Suspend NICE/STEPS and the Laptop untargeted social programs. You can’t be asking for public servants to take pay cuts and are buying laptops for some students who already have large home computer networks. 3. Government needs to concentrate more on spending in areas that could grow the economy and so the monies going to the social programs can be directed to more growth areas. 4. If there is a cash flow problem, a sunset levy on electricity (cut ozone emission can be the sales speech) could be implemented across the various sectors of the country so that we all share in the sacrifice and not only the Public Servants. 5. The levy in #4 should be large enough to be able to finance a 5% increase in Public servants pay as it is the expenditures of permanent income earners like public servants that is need to increase Private consumption which has been falling since 2012. You need to encourage public servants to spend and so should include in that package incentives for public servants to invest that increase in salary in concessionary mortgage loans through government agencies such as the SLDB and St Lucia Mortgage Finance Co. 6. Government should reinstate the Airport tax for the HIA and place it into a sinking fund to help meet governments its short term monetary obligations so that we can continue to sell bonds and treasury bills. The government has indicated that it has substantially dug into the existing sinking funds that it inherited in 2011. The sinking fund will be liquidated when the HIA project is ready and hopefully current surpluses would be available to rebuild the sinking funds. 7. The construction industry can get a shot in the arm if the government implements the Stephenson King’s idea of building homes for citizens on a lease to own basis. The NIC should find this venture to be a very profitable one to fund.
  47. 47. 47 8. There are too many folks who can meet their rent and would never be able to satisfy the banks on the usual mortgage terms. Those people can be accommodated in the lease to own programme which would do well to boost the construction sector.
  48. 48. 48 EXHIBIT 3 HOW DID WE GET TO WHERE WE ARE AND WHAT MUST WE DO TO GET OUT OF IT It is all well and good for the Prime Minister to be admitting that the country is in dire straits and needs to make the necessary changes to solve it. But it will be a whole different story when his government blames the previous administration for what was obviously a case of his government’s mismanagement of the economy. This is what happened to the economy according to data and narrative from the Social and Economic Review 2012- 2013. 1. The years of 2008 and 2009 were bad for every country owing to the Global Financial Crisis. Saint Lucia suffered a huge drop in Private Consumption/Spending over those two years by a whopping $392M. That drop in consumption resulted in a drop in recurrent revenues of $45.44M. However, those blows did not create a current deficit as the then administration was prudent with its spending, keeping recurrent expenditures below recurrent revenues at all times. Instead, the country recorded a current surplus of $72.79M in 2009 in the midst of the Global Financial Crisis. With a current surplus you are able to pay your recurrent expenditure with recurrent revenues with the excess going towards assisting with the financing of your capital programs. 2. In 2010 the country’s recovery was almost immediate with an increase in Private Consumption of $327M accompanied by an increase in recurrent revenues of $28M. The Cost of the interventions that helped the recovery process had the effect of a drop in the current surplus from $72.79M the year before to $45.06M in 2010 but would continue to increase in 2011 to a figure of $59.33M. 3. 2011 saw a continuation in the increase of Private Consumption and the general recovery of the economy, which again was accompanied by an increase in recurrent revenue of $48.18M. The increase in household spending or Private Consumption grew that year by a huge figure of $248M. A current surplus larger than the previous year was achieved at a level of $59.33M. That financial year ended with the SLP in power after having won the November 2011 general elections. No current deficit was recorded that
  49. 49. 49 year, no economic down turn. Economic growth of 1.3% was recorded with optimism from international agencies of further growth for 2012, albeit sluggish. The year ended with a current surplus of $59.33M and an overall deficit of 6.56% of GDP something that is not unusual. In fact in 2005 the overall deficit was 7.10% of GDP and we did not suffer a crash in 2006. And yes, government’s deposits at local banks stood at a healthy $236M at the close of 2011 (the treasury was not empty as the official propaganda claimed). 4. Enters the year 2012. What was different about that year that would change the course of this country in the downward direction for another two years with a third being projected by the CDB? Was there a 2012 regional or international crisis different from what the previous administration was confronted with? Here are the known changes in 2012: a. New SLP policies and programmes – huge expenditures in social programmes that don’t grow the economy and create real jobs. b. The Implementation of VAT as a Revenue Generating Tax – not all services attracted indirect taxes before VAT. c. The New PM started a campaign of fear in the country saying that he had inherited a messed up economy that he has to fix. He called for sacrifices from everyone because the UWP had messed up the country. The facts presented above which came from the Social and Economic Review of 2012 and 2013 did not corroborate that claim by the Prime Minister. d. Increase in recurrent expenditures by $88.81M which represented a figure of $29M more than the recurrent revenues recorded in 2011. It means that the PM was expecting an increase of at least $29M to avoid a current deficit. With recent revenue growth figures of $28M and $48M over the past two years, a $29M growth would surely be reasonable. With all things remaining equal, a $20M current surplus could have been expected. BUT WHY DIDN’T it happen? Why instead did we suffer a drop in recurrent revenues of $22M? Was the external environment any worse than it was over the three previous years? In fact the SLP boasted of record Tourist Arrivals in 2012. Jadia Jn Pierre was all over FaceBook boasting. So, the external environment COULD NOT be the culprit. So what went wrong?
  50. 50. 50 Compatriots, the only thing that could reasonably explain the 2012 fiscal mess is the Prime Minister’s fear-mongering. With all of his experience in the leadership of the country; he should have known that you don’t ask households to make sacrifices; you don’t instill fear into your local economy. That has the selfsame effect of a recession! Households willfully cut spending in those circumstances that is why governments must create stimulus packages to reinvigorate economies that are so affect. But you, as a government, must never create fear in your local economy. SLP supporters were all over FaceBook advising each other to eat less, party less and ultimately spend less so that the Prime Minister could ‘FIX’ the economy. You can’t grow an economy if people are not going to spend! The people of this country took heed to the PM’s call and started to cut on spending which explains the $207.5M drop in Private Consumption in 2012. But that would be exacerbated by the implementation of VAT in that same year sending several borderline businesses into mortality along with a procession of economic woes such as increased unemployment, reduction in government revenues of $22M, a current deficit of $52M and 1.5% economic decline. 2013 was a bit better with a growth in recurrent revenue which WAS NOT accompanied by a growth in Private Consumption. Private consumption continues to fall, this time by $51.6M. That eventuality is explained by an improvement in general tax collection which was also cited in the narrative of the Social and Economic Review of 2013. It means that while people are spending less, government is able to milk every drop of tax from them. Going Forward On the basis of the foregoing, it would be very unfair for the public servants to be the ones to suffer in the correction of this problem. The claim that the public service is bloated cannot be a good excuse for wanting to cut their pay. The fact of the matter as represented by the Social and Economic review of the past 15 years is that Salaries and Wages as a percentage of Total Recurrent Expenditure has hovered around 45%. In 2012 it was 43% and in 2013 only 44%! So while we have, for the past decades, been lamenting about the growth of the public service; its pressure on the current fiscal platform is not unusual and does not constitute a crisis!
  51. 51. 51 Here is what the government needs to do to fix the economy. 1. Review some of the new political appointments that were made in 2012 in the missions and elsewhere. Since those people have hardly grown accustomed to their new and improved salaries, they should be more amenable to a pay cut. 2. Suspend NICE/STEPS and the Laptop untargeted social programs. You can’t be asking for public servants to take pay cuts are is buying laptops for students who already have large home computer networks. 3. Government needs to concentrate more on spending in areas that could grow the economy and so the monies going to the social programs can be directed to more growth areas. 4. If there is a cash flow problem, a sunset levy on electricity (cut ozone emission) could be implemented across the various sectors of the country so that we all share in the sacrifice and not only the Public Servants. 5. The levy in #4 should be large enough to be able to finance a 5% increase in Public servants pay as it is the expenditures of permanent income earners like public servants that is need to increase Private consumption which has been falling since 2012. You need to encourage public servants to spend and so should include in that package incentives for public servants to invest that increase in salary in concessionary mortgage loans through government agencies such as the SLDB and St Lucia Mortgage Finance Co. 6. Government should reinstate the Airport tax for the HIA and place it into a sinking fund to help meet governments its short term monetary obligations so that we can continue to sell bonds and treasury bills. The government has indicated that it has substantially dug into the existing sinking funds that it inherited in 2011. 7. The construction industry can get a shot in the arm if the government implements the Stephenson King’s idea of building homes for citizens on a lease to own basis. The NIC can find this venture to be a very profitable one to fund. There are too many folks who can meet their rent and would never be able to satisfy the banks on the usual mortgage terms. Those people can be accommodated in the lease to own programme.

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