IT'S CRUNCH time where the national debt is concerned. That's the inescapable conclusion that must be drawn from Dr. Davies' almost "matter of fact" admission in the House of Representatives on Tuesday that Government was going in the wrong direction in terms of its debt reduction targets.
The Finance Minister disclosed that between last October and March, when this fiscal year ends, the debt would have risen by $36.7 billion. He contended that this increase mainly reflected "higher budgetary financing requirements and programmed disbursements".
In an attempt to close the budgetary gap, as well as find the additional $13.5 billion increase in the Supplementary budget, the Finance Minister announced increased user fees for firearm dealers/holders, motor vehicle licences, and inspection fees. Quite significantly, in some instances the increases were as high as 100% and 300%. These hiked user fees are on top of the previously announced increases in property taxes that reflected equally steep percentage increases.
These latest frank admissions on the country's worsening debt problem were prompted by probing questions asked in the committee stage preceding the debate on the Estimates. In this regard the Opposition must be commended for taking its role seriously, an indication of what can be expected from the strengthened Opposition benches.
Where the increased user fees are concerned, the authorities tried to make the incidence of taxation not hurt the poor (low-income groups). At the same time however there is no gainsaying that the hike in motor vehicle fees will trigger increases in taxi fares and in the general private transport sector.
While we concede that the Government has little option but to increase user fees at this time, the magnitude of the increases will send a signal to the broader society regarding acceptable price adjustments.
Additionally, the real challenge to be faced with the debt dilemma is how to generate growth. For this to occur, we believe that the administration must revisit the economic model. They must re-examine the present trade-offs between the critical macro variables of inflation, interest rates and the exchange rate. It can't be beyond them to find a formulation of these variables that can generate growth. We need action now!
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