Keith Collister, ContributorFOR THE month of December 2005, the fiscal deficit was $4196 million, or a massive $5771 million deviation from the surplus budgeted for December of $1575 million. This is by far the largest deviation from budget for the fiscal year to date.
In fact, the December deficit is $1,633 million more than November's deficit of $2,563 million, making December the third month so far this fiscal year that a surplus was projected, but was not actually achieved.
REVENUE SHORTFALL
CONTINUES TO WIDEN
For the April-December period, central government revenues are $17,604 million below the year-to-date budget of $145,089 million, a gap of over 12 per cent. This shortfall is mainly due to the underperformance of tax revenue by $14,859 million compared with budget.
EXPENDITURES ABOVE BUDGET
FOR SECOND MONTH IN A ROW
The gap between actual expenditures and budget widened again in December, continuing November's reversal of the previous extraordinary fiscal restraint exhibited in the April-October period. Expenses of $21,087 million (all figures in Jamaican dollars) substantially exceeded the budgeted figure for December of $19,442 million. This overrun was primarily driven by above budget expenditure on programmes, wages and interest costs in December, which currently appears unlikely to be reversed.
Programme expenditure of $3,789 million exceeded the December budget of $3,155 million, while wages of $5386 million also exceeded budgeted of $4968 million. More ominously, interest costs of $9764 million substantially exceeded budget of $9023 million, driven mainly by external interest costs of $2,759 million exceeding the budget of $2,139 million.
The current relatively low level of discretionary expenditure, and the increasing needs of the society (programme expenditure is now only very marginally below budget for the fiscal year so far) make it very unlikely that the Government will be able to achieve significant further cuts in programme expenditure for the rest of the financial year to offset any further shortfalls in tax revenue.
While year-to-date interest costs overall are still below budget, this is now almost entirely due to lower-than-projected foreign interest costs, which performance also may not continue. The fact that domestic interest costs are no longer significantly lower than projected is entirely unsurprising considering our recent extended period of domestic interest rate stability. While a small saving in the capital budget was achieved in December, further savings in this area are also very unlikely for the final quarter of the year.
TAX REVENUE UNDERPERFORMANCE
For the month of December Government revenues of $16, 891 million were substantially below budget of $21,018, driven largely by tax revenues of $14,859 million which were nearly $2.5 billion below budget projections of $17,309 million, the balance of the shortfall reflecting the underperformance of capital revenue, and particularly grants. Income and Profit Taxes, at $6339 million, were lower than the projected revenues of $6855 million. However, it was taxes on Production and Consumption which, at $4465 million, fell $1157 million below the projected $5622 million, that was the major factor in the overall shortfall in Government Revenue against projections.
This shortfall was largely attributable to the underperformance of local GCT and GCT on imports, with December revenues of $2,666 million and $1,807 compared with a budgeted $3,415 million and $2,375 million respectively.
The rest of the shortfall reflects the underperformance of special consumption tax, tax on interest and lower than budgeted receipts from PAYE.
CONCLUSION
For the fiscal year to December, the deficit has increased sharply from November's year-to-date deficit of $24,980 million to $29,159 million or $13,688 million more than the budgeted deficit of $15,470 million. This acceleration of the fiscal gap means that the year-to-date deficit is currently barely below last years equivalent period deficit of $30.58 billion. A continuation of the current trend would mean that the final deficit in percentage terms would be only a very marginal improvement on last year's deficit of 4.8 per cent of GDP. Needless to say, that result would certainly not impress the financial markets, particularly as Jamaica's current international bond prices appear to have factored in the Government bettering its recently revised fiscal deficit target of two per cent.
TAKEN FROM THE FINANCIAL GLEANER, FRIDAY, FEBRUARY 10, 2006
