Budget Saints and Sinners

The Government’s December financial report contains a mix of good news and bad

The Department of Finance and Treasury publishes regular financial reports, and perhaps the most useful for average voter are the monthly budget summaries. They provide a useful yardstick to measure the government’s performance overall.

Too often, these reports are ignored. This is a bit like parents binning their child’s academic progress reports, and then getting all mystified when the final grade comes in.

The year-end report is especially useful. It can be seen as a capstone on the government’s progress through the year. It’s especially interesting this

year, because it marks almost exactly a year under the Salwai administration.

If this actually were a report card, the story would be

one of a bright student who has trouble controlling

his self-indulgent behaviour.

Flush with cash

Right off the top, the report announces that the government finished the year with a nearly VT 3.2 billion surplus. At almost 4% of Gross Domestic

Product, that’s big. Really big. Even when donor contributions are factored out, excess cash stands at well over VT 1.8 billion.

By the end of 2016, the government had collected revenues representing 113% of projected income. This in spite of the fact that December revenues were well off the pace, down over 26% from 2015. (In fairness, December 2015 revenues were boosted by disaster relief spending.)

Where is the money coming from? Did a rich uncle die? Amusingly, the report states that “The increase in collection came as the result of improved admiration, compliance, and enforcement of tax legislations.”

Not so sure about that ‘admiration’ part, but yes, there was a significant (VT 1 billion) infusion of cash into general revenues from the European Union in June. This enabled some needful disaster response and recovery spending.

The increased flow of goods across our borders also resulted in excise taxes running at about 113% of projections. This neatly offset a slight VAT under-run. Over the course of 2016, VAT represented the lion’s share of revenues overall, but were a little shy of expectations, finishing the year at 95% ofthe expected total.

Passports to prosperity

The overachiever in the class, though, was indisputably the Vanuatu Economic Rehabilitation Programme, or VERP. The passport sales scheme, aimed largely at Chinese nationals seeking convenient third-country citizenship, generated nearly VT 2.7 billion.That’s a startling 183.4% of projections.

Now, there’s good reason for the government to be chary with its income projections from programmes like this. It’s dangerous to assume that this will represent a long-term revenue stream. And revenue streams such as this can be dangerously addictive.

 Economic and political circumstances are such that passport sales are in vogue among wealthy Russians and Chinese. This is mostly due to a

combination of newfound wealth and mobility, and economic and political uncertainty at home. There’s no guarantee that these circumstances will last, or that nations won’t begin cracking down on the practice. The European Union has already pressured Malta to tighten up its market.

Still, the windfall has allowed the government to knock a VT 1 billion chunk out of its outstanding severance liability. This ‘hidden debt’ went largely unseen and unbudgeted, because due to accounting practices, the liability didn’t become current until the civil servants actually retired. It was the source of quiet concern for a few years before the VERP bonanza made a decisive response possible.

Unbudgeted spending

The billion vatu severance pay-down was just one of dozens of unbudgeted expenditures. (It’s not strictly fair to call them all ‘unplanned’,

because some of the spending had been on the wish-list for some time, but had to wait until additional funds were available. With revenues

running so hot, 2016 proved to be the right time.

Among the nearly 3 dozen line items are such useful things as money for Child Rights and Disability Officers at Justice, a teacher payroll top-up and additional funding for the Financial Intelligence Unit’s efforts to get Vanuatu off the money laundering grey list.

Petty self-indulgence

Good intentions don’t always carry the day. Finance’s December report yet

again contains a litany of unplanned and unbudgeted expenses that can only be viewed as wasteful:

• In spite of concerted attempts to rein in spending, the government still managed to drop a shocking 80.6 million vatu on vehicles. That’s eight and a half times more than was budgeted.

• Vehicle hire, which had been shockingly high in the past, came down quite a bit, but still overran itsbudget by nearly 40%.

• The fit of political pique that resulted in a raft of Directors General being shown the door might have contributed to an overrun of VT 181 million in acting allowances. Not a single vatu was allocated to this at the beginning of the year.

• Spending on entertainment expenses for official functions was more than

double the allocation, reaching nearly VT 110 million.

• Court costs exceeded VT 135 million. That’s—wait for it—2,605.8% of the

original allocation.

• Unbudgeted service contracts cost the government a cool VT 107 million,

against an allocation of a mere VT 1.5 million.

• And that constant source of overspending, scholarship fees, were

down from previous years, but the government once again restrain itself,

spending nearly twice the VT 105 million budgeted for the purpose.

Scholarships aren’t a bad thing per se, but analysis shows that fewer and

fewer students are actually eligible for them because of chronic under-spending on primary and secondary education. Scholarships are most accessible to the least disadvantaged among us. Overseas education grants remain one of the most popular political plums in the patronage basket.

The bottom line

The real bottom line, however, is the actual bottom line. Except for these few glaring lapses, the overall performance of the government has been quite good. Revenues are more than healthy, they’re solid across the board. Even without the VERP, we’d be in modestly good shape.

And at the macro level, spending is quite nicely in line. Overall, it comes in at 98% of projections, and from department to department, there’s really quite remarkable consistency. The highest rate of overspending is a mere 101% of budget, and the greatest underspend rateis 93%.

This indicates that programme and service delivery is more or less on target— excepting of course self-indulgence on professional perquisites.

Now if we could only redirect those wasted VT 800+ million of unbudgeted

spending to health and education, maybe we could save a few more lives.

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