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Budget surplus must enlarge the Economy
I respond to Bottom Line’s
open invitation to join the debate launched in last Thursday’s
column about how best to use budget surpluses.
Not only is the MTDS not the best place to look for answers, as
Bottom Line discusses, its underpinning economic policy model
renders it incapable of providing them.
The model was designed in and for developed economies where, by
and large, the economy’s scarce resource is fully employed.
That condition has never applied in PNG, as the high and rising
level of unemployment (and associated crime) attests.
The model dictates that the investment required to take up this
labour slack be private and that government should limit its
activities to maintaining the state apparatus and social
investment including economic infrastructure.
Consequently, only two or three in every 10 persons joining the
labour force are absorbed in (legitimate) monetised activity
(estimated from census data).
Recent strong formal employment growth evident in the
BPNG’s quarterly index, regrettably, is not a good indicator of
labour absorption.
Most citizens derive their incomes from sale of agricultural
produce, particularly export of tree crops.
Since about 1980 these exports, apart from oil palm, have grown
much slower than the population, giving rise to the extensive
(but unmeasured) hidden unemployment already mentioned.
This level of economic exclusion is bad for the individual, the
community and the nation.
It may be compared with social exclusion. For example, Bottom
Line notes that 25%-30% of school-age children are not in
school.
So, would the surpluses be better used to enlarge the school
system and accommodate the excluded minority of children or to
enlarge the economy to accommodate the excluded majority of
young adults?
The answer to this question must be the latter, for three
reasons.
First, social expenditures rely for financing on taxes derived
from economic activity.
The main reason the nation has not yet achieved universal
primary education is that economic growth has long been too slow
to generate the required level of government revenues.
Spending the surplus on education won’t enlarge the economy or
government revenue.
On the other hand, investing it enlarging the economy would
secure revenue growth as the basis for on-going increased
education expenditure.
Putting the social cart before the economic horse explains a
large part of the nation’s slow development.
The second reason for investing the surplus enlarging the
economy is that that is the only way those who are in school can
realistically aspire to getting a job when they leave.
Thirdly, unlike private investment, public investment can accept
the risk associated with developing customary land which will be
necessary to absorb labour quickly enough to prevent further
impairment to the social fabric.
John Millett
Via email
 
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