The Supplementary Appropriation ( 2012) Bill

Hon Li Kwong Wing: “Fiscal squeeze brings down economic growth to 3.4% in 2012, causing increase in unemployment, inequality and poverty”

On Tuesday 25 October, the National Assembly passed the Supplementary Budget of 2012, which was presented for examination by MPs.

There was an excess over appropriated expenditure that needed Parliamentary sanction in terms of the Financial Rules. However, what is worth noting is that actual total public expenditure incurred in 2012 was not only short of the Budgeted Estimates, but worse still, was less than the total expenditure made in 2011. In fact, total expenditure in 2011 was Rs 68.5 bn while that in 2012 was less, ie Rs 66.8 bn. So, the actual expenditure has shrunk by Rs1.7 billion in 2012.

This has prompted Hon KC Li Kwong Wing to call the Budget 2012, i.e. the Government expenditure effectively spent, a “Bidze ser ceinture”, a fiscal squeeze. In effect, a Budget cut, an austerity Budget in realized terms.

He explained that the total appropriation for the Budget 2012 was Rs77.3 billion, but Government spent only Rs66.8 billion, i.e. an underspending of some Rs10.5 billion, representing 13.5% of the original estimates. This divergence is even greater than the threshold of 10% allowed by the IMF. Hon Li Kwong Wing added that this is a serious blow to the credibility of the budget because over 13.5 % of the budget was underspent. That is why the original budget deficit, which was estimated at 3.8%, was brought down to 1.8% according to the latest estimates of the Ministry of Finance. So, the low budget deficit was achieved through massive underspending. But this has also caused total government spending to actually decline in 2012. This is a fiscal squeeze, but termed as fiscal consolidation by the economic pundits, he added.

It is this kind of fiscal squeeze which has caused the economic growth to decline from 3.6% to 3.4% in 2012, he emphasized, causing the increase in unemployment, inequality and poverty, whatever may be sung by the Director of IMF Christine Lagarde or whatever may be the fulsome praises of Moody’s of this so-called fiscal consolidation.

Hon Li Kwong Wing further stated that the problem of that tremendous underspending or spending cuts, however defined, is that at a time when our export markets in the Euro Zone are in economic doldrums, under the stress of sovereign debts and a Euro Currency Crisis, we have, in fact, in this Budget 2012, delivered NOT a counter cyclical budget to counter the recessionary pressures from Europe, but rather a procyclical budget of fiscal squeeze or consolidation (sic) to the detriment of the poor and the middle class of this country, and this is what is called in Creole: ‘serre ceintir’. This is what is causing the poor and the hardworking working class to suffer from a fall in their real income, he said.

Although no government would seek a high budget deficit and fiscal prudence is favoured, putting a premium on close control over public expenditure, yet nobody would have expected a government to effect an expenditure cut in practice, especially with an overhanging global recession. When the Ministry of Finance claims that it has used fiscal stimulus to weather the Eurozone storm and maintain positive growth, we now have the Opposition spokesman for Finance pointing to a different picture of actual fiscal contraction paring down growth.

* Published in print edition on 31 October 2013