Government overspending, fiscal turbulence
IN a House session last week, Rep. Vincent “Kobre” Aldan said out loud what many other elected officials can only mutter among themselves: The government is running out of money because it overspends.
This is a problem for many governments around the world, especially during a severe economic downturn, a situation the CNMI has been grappling with since 2020.
“The government needs to reduce itself,” Rep. Kobre said. “Its biggest expense is personnel. So if we want to get a solution, our best solution is to cut government jobs. Period.”
Or, as the CNMI Democrats would put it in a statement to the media in 1983 (not a typo):
“We must move away from the MORE GOVERNMENT to the LESS GOVERNMENT philosophy, from GOVERNMENT AS THE EMPLOYER OF FIRST RESORT, to the GOVERNMENT AS EMPLOYER OF LAST RESORT thinking. As a people we should begin to learn to stand on our own two feet, as individuals and as private organizations, and not depend on the government for everything.” Back then, the Democrats also noted that the Retirement Fund “has become a drain on our budget…. What is needed now is a serious effort to come to grips with a funding solution. This might entail reducing retirement benefits, eliminating double-dipping and increasing contributions. Otherwise we will wind up with not only a bankrupt Fund but a bankrupt government as well.”
What followed, however, was the greatest expansion of the local economy since the Japanese era. And the result was a corollary expansion in government hiring and, yes, retirement benefits.
As the late UCLA professor emeritus and economist Deepak Lal once noted, politicians, to win elections, must “bid for votes by offering income transfers to some sections of the populace at the expense of others.” But the “expansion of revenues during [economic] upturns…led to a commitment of entitlements that could not be repudiated when revenues fell during the downturn….”
And so here we are.
Also last week, CNMI House members unanimously passed a bill that drew a red line on what they consider as politically feasible (i.e., what won’t anger many voters in an election year): “[F]unding retirees’ pension for all retirees of the CNMI cannot be compromised and cutting additional hours from the hardworking employees of the government will be detrimental to their livelihood.”
In other words, they won’t touch two of the government’s largest spending items: the retirees’ 25% benefit that is not required by the settlement agreement, and government payroll.
So in the meantime, how can the government continue paying these and its other (mounting) obligations?
More “oversight investigations”? More meetings and summits? More begging for more federal handouts? More tax/fee hike proposals?
Most likely, all of the above.
For once, a sensible proposal
REPRESENTATIVE Manny Castro has introduced House Bill 23-103, which would amend the current tax code so that the CNMI could attract and retain “individuals and businesses participating in the global digital economy and global financial markets.” The bill’s ultimate goal is to expand the local revenue base. How? This was explained by two tax experts and a software company owner in their highly informative remarks during last week’s session.
Lawmakers should pass the bill, and delve deeper into its apparently counter-intuitive “idea”: that more often than not, the best way to increase tax revenue is to lower the tax rate.
H.B. 23-103 is not, to be sure, a cure-all. Its passage is unlikely to result in a sudden and immediate influx of investors eager to pay taxes to the CNMI government. Amid the Asian currency crisis in the late 1990s, CNMI officials passed similar tax incentive measures such as the qualifying certificate program (to attract new investors) and the creation of free trade zones (to diversify the local economy), but it still took over a decade before the economy finally recovered.
But maybe it would be different this time, what with an ever-growing global economy based on e-commerce. Maybe. We sure hope so.
