Fixed percentages in the Budget are unreal goals

SANTO DOMINGO. If besides complying with the legal assignment of 4% of the Gross Domestic Product (GDP) for Education, the government takes on the fixed percentages established in different laws, then the Autonomous University of Santo Domingo (5%), the city governments (10%) and the Justice Department (4.10% for the Judicial Power and the Justice Department), just to mention some sectors benefited by the special regime, would take away 38% of the RD $630.9 billion budgeted for the next year.

And if to this investment we add what is provided for in the project of the Law of the General Budget of the State for the electricity subsidy (RD $40.9 billion) and the payment of interest on the debt (RD $88.0 billion), the government would have committed 48.4% of its projected income for the year 2015.

For economists Henry Hebrard and Jeffrey Lizardo this clash between budgetary reality and desired budgetary assignments puts into evidence the need to put under the microscope these different special budgetary legislations and, in addition, the urgency to restructure the criteria of expenditures and income of the General Budget of the State.

"In reality this responds to situations of the past. The ideal would be to revise this and be frank. If this has not been able to be fulfilled, then there is a need to modify these laws, or perhaps to adjust the percentages or perhaps to return to the concept of public administration and this is that all the funds should go into a box and from this fund later on be distributed with regard to how things are," notes Hebrard.

At the same time Lizardo points out that he is not an agreement with the assignment of a fixed percentage of the income to a determined area. "What I agree to is that the financing has to be given out based on results and goals," he expressed.

Both men coincided in noting the National Development Strategy (END), established by the Law 1 - 12, is a point of reference for rethinking this budgetary structure.

A discussion from END

The economist Jeffrey Lizardo feels that the discussion on these laws should take place within the framework of the Law of the National Development Strategy, which establishes a program of project goals for the Dominican Republic and a scaled manner until the year 2030, and in the Fiscal Pact which is under consideration with the idea of a process of fiscal restructuring and which includes increasing the tax burden, which for next year should be 16% but in the budget for 2015 only reaches 14%.

"There is a need to revise all of the percentages assigned by law and based on this see this about the feasibility of maintaining them and how they are going to be financed. What is clear is that the Budget, and none of the budgets over the last years, have been sufficient. Which is to say, the income was not sufficient to cover those percentages required by the laws," he said.

And it is on the basis of the END in which should also be established, according to the economist Henry Hebrard, the priorities of expenditures. "Distribute the assignments not in function of the income, but of the expenditures. If there is a need to distribute the percentages this has to be done in function of the expenditures, not in function of the GDP as was done in the case of education."

Lizardo points out that with the exception of the areas of education and health, in which the END provides for goals of fixed percentages for the next year (2015) of a 5% of GDP for education and 2.8% for health, "the rest should be given out based on goals and results, because the Budget of the Nation should go in that direction, a budget for results. What does this mean? That I finance a specific goal, I am not financing just to finance.

"There are spaces for reassignment. Let us limit or not disburse the resources to institutions, to some decentralized institutions, that have their own income, that can improve their income and let's free up those resources for other programs which do have an impact, and this has a lot to do with the quality of the expenditure," Lizardo considered.

A limited budget

Both economists see as a limitation of the current legislation for the General Budget of the State the great proportion of this amount that is absorbed by the debt service and the electric subsidy.

"The greatest problem, the greatest drawback, to the public policy is the growing weight of the debt service which is going to take, according to the Budget Project for 2015, 42% of the income. If to this we add the commitment with the electricity subsidy, some RD $40 billion pesos, obviously there is little money available to comply with the rest of the things. Just the electricity subsidy takes 5% of GDP," Hebrard underlined.

But Lizardo also notes the weight of the lack of improvement in the tax sector. "They have to make a greater effort to combat tax evasion in order to improve income. They have to make greater efforts and improve the collection. Because the problem is also with a tax pressure so low that there is little that they can do.

He adds that this reality puts into evidence the urgent need of a fiscal pact, in the face of what he calls "the exhaustion of the structure of expenditures and income." "On the side of income there is very little and with little return. And on the side of expenditures there is very low quality. All this, when the country should bet on those interventions with expenditures of greater social and economic impact according to the National Development Strategy.

Fixed percentage amounts

According to article 24 of the Law of National Strategy of Development, for 2015 the education sector should receive 5% of GDP. This would mean an investment of around RD $146.1 billion. This is a difference of RD $26.7 billion from what was established for Education in the 2015 Budget Legislation, which was RD $119.4 billion. Taking other examples, if they were to apply the percentages established by law, the UASD (5%, Law 5778) would have to receive RD $31.6 billion, and not RD $7.2 billion budgeted for 2015. In the case of the city governments, for whom Law 166 - 03 orders 10% of the Budget and which is foreseen to receive next year RD $16.99 5 billion, they would receive some RD $63.1 billion. While for the judicial sector, if they were to comply with what is established by Law 194 - 04 of a 4.10% for this sector, they would have to receive both for the Judicial Power as well as for the Attorney General of the Republic an amount of RD $25.9 billion and not the nearly RD $9.0 billion provided for in the legislation of the Law of the General Budget of the State.