The analysis of the Fiscal Responsibility Framework Bill, (Part 2), will start at the conclusion of Part (1), as a reminder that “Skerrit should never be allowed to legislate an FRF model that circumvents his current obligation to account for $2.8 Billion missing from the Consolidated Fund”. The analysis is not intended to evaluate the technical parameters required for achieving an optimal model. More importantly, it seeks to highlight the core realities of Dominica’s current fiscal landscape, and the administrative and management deficiencies of the FRF Bill that would render it unsuitable for purpose.
Throughout the 1980’s and 1990’s, when good and accountable government dominated the Caribbean landscape fiscal policy decisions were constructed mainly from the perspective of tax increases and spending cuts, leading to lower budget deficits. Against that background it was relatively easy for a country to determine the extent of “fiscal responsibility” by examining the trajectory of a country’s national debt. However, from the year 2004, with the increasing dominance of alternative revenue sources, concentrated in the hands of government Ministers, there was a fundamental shift in the process of Budget formulation and enforcement of public accountability regulations.
The proposed FRF Model has its origin in the country’s rapidly deteriorating fiscal health, largely attributed to Skerrit’s mismanagement of the economy, and especially the impoverishment of the middle class. Most credible governments, when faced with economic disaster, will embark on fiscal consolidation measures, whereby budgetary measures are instituted to improve the fiscal situation and reduce the debt-to-GDP ratio. These policy adjustments are executed through revenue enhancing, and expenditure containment measures in the Budget. Unfortunately for Dominica, due to a large section of the population being without gainful employment, the effective tax base is considerably reduced. Technically, there is no headroom and limited scope for revenue enhancement measures. And so Skerrit is embarking on desperate measures to attack the wages and salaries of public servants as his only viable option for expenditure containment.
Dominica’s current governance system/structure is a far cry from the democratic-governed economy of the 1980’s and 1990’s for which the FRF model is best applied. In the Interpretation section of the Act says, “This Act shall be read and constructed together with the Financial (Administration) Act #4 of 1994. But this seems to be in spirit and not the letter of the Act. There is abounding evidence to indicate that with the advent of “sale of passport” as the main source of revenue, the provisions of the said Act has virtually become dysfunctional, or violated. In fact, since the emergence of Anthony Hayden as an item in the control of Dominica’s economy, government has literally established two (2) repositories for public revenues. One is based on the traditional mandated operations of the Treasury for collection of revenue and disbursement of funds. The other repository is clandestinely/creatively designed for the management of revenue originating from the sale of passports.
According to Section captioned Interpretation, of the FRF Bill, “Revenue” is defined as follows: “All taxes, tolls, imposts, levies, rates, duties, fees, penalties, royalties, surcharges, forfeitures, rents and dues, proceeds of sale, repayment of loans, and all other receipts of the government from whatever sources arising for which our Parliament has the power of appropriation”. This definition excludes “revenue from sale of passports”. Is this deliberate or deceitful? In effect, government is saying that Parliament does NOT have power of appropriation over the CBI program. Evidently, this power is usurped as the prerogative of an undisclosed Minister. Without doubt, this Bill is treading into dangerous territory. The danger comes from Skerrit’s back-handed attempt to present and FRF Bill for Parliament’s approval, which effectively overrides/denies Parliament of its oversight responsibility for all forms of revenue.
In light of the new arrangement for funding government operations, the overarching mandate for the Budget is to overcome the pressing economic problems facing low and middle-income families. The proposed FRF is founded on the standard practice, whereby the economics of deficits and debt is structured to show that rising debt ratios will quickly become economically disastrous. Accordingly, government is embarking on program that requires large sacrifices from low and middle-income households, as justification of an effort to lower the trajectory of debt ratios. This formulation overlooks the other revenue sources accessible by government that should be applied to directly productive enterprises, and opportunities for increased employment.
By his deliberate exclusion of “revenue originating from passports” from the Consolidated Fund, Skerrit has imposed an eternal threat on the economic success and financial security of typical families, as follows:
- Chronic downward pressure on aggregate demand, that prevents economic growth;
- Persistent high levels of income inequality between those associated with the regime, who are privileged to sell passports, and those at the bottom and middle, the real contributors to national output.
In the circumstances facing Dominica, the ultimate purpose of the impending Budget Plan should be to ameliorate the danger posed by both of these threats. The impending Budget Plan 2021/22, should emphasize a shared prosperity derived from sovereign wealth. This is the only practical way to put the economy’s debt-to-GDP ratio on a sustainable downward path, over time.
Unless and until the citizens are able to retrieve the estimated $2.8 Billion missing from the Consolidated Fund during the two Budget Cycles 2018/19 to 2019/20, then the proposed FRF Bill is a legislative exercise in futility. The said missing amounts could be applied to directly productive activities, aimed at generating employment and enhancing growth of the economy. By increasing the GDP component of the ratio, the amount of debt would automatically reduce.