We must all adjust.
That in a nutshell was the message behind Finance Minister Colm Imbert’s wide-ranging 2018 Budget which, as an instrument of fiscal policy, feels like an exercise in revenue collection that aims to capture the widest pool. The rich and poor will be affected alike.
On the plus side: there were no job cuts as promised, certain restrictions were lifted for maxi-taxis, a $100,000 cash allowance for home construction was announced, tax exemptions for 100-acre farms introduced, the foreign exchange needs of exporters prioritised, and hotel allowances continued.
On the other hand, our poor and most vulnerable are likely to feel the pinch of increased gas prices, tax increases for certain vehicles, and reform to the gaming sector.
The rich, too, will be affected. New tax measures will affect banks, big oil and gas firms, and private hospitals.
But while the signal that we must all temper our expectations is loud and clear, how the vision of a diversified economy will be realised is less apparent.
In the course of a speech lasting three hours and 21 minutes, Imbert managed to touch on almost all of the concerns that had been raised ahead of the annual fiscal package. But the laudable reach of the presentation was also a weakness. Many wanted to see deeper, more focused initiatives.
The minister spoke of “changing the paradigm,” the need for a “behavioural and cultural shift,” “hard and difficult choices,” “crossroads,” and “serious adjustment from all sectors.” Yet, his Budget felt more like the familiar basket of measures we have grown accustomed to. It’s unclear how well the State’s incentives and revenue-collection measures have worked in the past and whether they will do the trick now.
Clearly, the realities of the state of the economy left Imbert with little room but to maintain the status quo of greater taxation and curbs on spending. The minister admitted as much when he noted the country is built on “a false economy” — a fact that has been argued by economists for decades. That economy has created a “false expectation that the good times would never end.”
There was focus on the dramatic fall in oil and gas revenues. The silver lining, however, is that this now means the vast bulk of revenue is coming from streams outside of this sector.
In terms of the tax on natural gas companies, this measure will have to be carefully studied given its likely impact on operating costs and the perception that taxation incentives have kept multinational corporations in the country. If the taxes result in an exodus, we may gain revenue in the short run but lose business in the long run.
However, if this process coincides with a burst in non-energy revenue, or streams of revenue from green energy, for example, the economy could be poised to effectively recover.
It is encouraging to see expenditure down from $53.4 billion to $50.5 billion, but the devil will be in the details of spending. Though the last Budget’s revenue figure of $47.4 billion was revised up to $48 billion, this has now been slashed to $45.7 billion. If this revenue is too high and a shortfall of revenue ensues exceeding ten per cent, a withdrawal from the Heritage and Stabilisation Fund will become a likely option.
Where the minister must be lauded is in his suggestion that the Government is open to listening to citizens for new ideas. His Budget was careful not to rock the boat too sharply, while at the same time making it clear the seas ahead will be difficult to navigate without some shift in the sails. But make no mistake, the boat has been rocked. For all.