Economist Miguel Ceara-Hatton presents data today, Friday 12 October that challenges claims by former President Leonel Fernandez that the electricity subsidy and rising petrol prices were the main causes of the fiscal deficit inherited by the Medina administration, estimated to be over US$4.8 billion, almost twice the size of the Baninter 2003 financial crisis.
In an op-ed commentary in today’s Hoy newspaper, he outlines both the government arguments and the reality.
Government argument: Taxation revenue was down in 2012.
Reality: The government planned a 23% tax increase for 2012 compared to 2011. The objective was known to be impossible from the start because the elasticity of the nominal GDP to taxation revenues is 1 and not 2.3 as was planned. If the government planned for a nominal GDP growth of 11%, fiscal revenue should have increased at the same rate. In 2012, the preliminary data indicates that fiscal revenue grew by 12% or more, equal to the average growth in the previous two years. This knocks down the argument.
Government argument: The electricity subsidy was increased.
Reality: The electricity subsidy reached the figure of US$1.24 billion in 2012. One would have to determine the weight of the increase of the subsidy in the increase of the primary expenditure (without including interests and payment of debt). In 2011 this percentage was 65.6% compared to 2010, so in 2011 the increase in the electricity subsidy was responsible for two thirds of the increase in spending, but in 2012, the increase in the subsidy explains only 12% of the increase in spending, that is, the subsidy is important but it does not explain the increase in spending.
Government argument: The increase in the price of petroleum in 2012.
Reality: In 2012 the government budgeted a monthly price of US$101 for WTI barrel for all of the year, but turned out that the average price registered until September was lower. The monthly differences between what was projected and what is real gives a difference of US$43.50 per barrel in favor of the government. That argument doesn’t stand either.
Ceara Hatton concludes: “What happened was that the nominal primary spending increased by 44% and only produced a real growth of 3.8% of GDP, in a scenario where other components of aggregate demand grew. A large part of the money evaporated, which was logical as the country was ranked the highest in wasteful spending in the world,” a reference to the World Economic Forum’s Global Competitiveness Report.
http://www.hoy.com.do/opiniones/2012/10/11/450278/Que-paso