A budget speech is a political statement, a communication exercise in explaining a government's fiscal choices and a general statement about the future. As with budget speeches, the 2027 Budget was filled with the normal excoriation of the past regime, just as the People's National Movement (PNM) had done during its ten years in office. The Minister of Finance listed a litany of failures which it attributed to the former PNM administration. The difficulty is that the current Finance Minister cannot change his inheritance. It is what it is. The task of the current United National Congress (UNC) administration is to improve the fiscal position and address the critical economic issues to provide a better experience for citizens.
The PNM inherited low energy prices, declining oil and gas production, and high levels of transfers and subsidies. Broadly, its strategy was to maintain the status quo while waiting for energy prices to revive. Despite lower revenues from 2015-2025, compared to the 2010-15 period, it continued high levels of transfers and subsidies, amounting to over 50% of expenditure, which resulted in large deficits. When gas and petrochemical prices revived because of the war in Ukraine, that bounce did not last.
Despite the change in government, the strategy is the same. However, despite the declining trend in natural gas production that continued this year and the closure/idling of several plants in Point Lisas, prices for the petrochemicals produced there have been buoyant. This helped increase tax receipts from the non-oil sector. Estimated revenue for 2026 was $54.3 billion, 2.1% less than projected, but 17% higher than 2025. Expenditure also rose 14% from $53.7 billion in 2025 to $63.2 billion in 2026. This reduced the deficit to $7 billion in 2026, down from $9.1 billion in 2025. This might sound good, but the realised deficit of $7 billion was almost double the budgeted deficit of $3.6 billion.
The critical difference is the impact of the public sector salary increases for the 2014-2019 period, especially the 10% awarded to the Public Services Association. The new salaries are now being paid, albeit later than agreed. The real difficulty is the non-payment of the backpay element. The minister has never disclosed the outstanding amount. We presume the figure is substantial, in the billions, and that it has been omitted from the 2027 Budget. Indeed, the 2027 Budget estimates are based on the key assumption that only 40% of the backpay will be paid in cash, with the balance to be paid in non-cash.
On the face of it, this 40/60 offer sounds pragmatic and recognises the Government's cash-flow issues. Government revenues are tight, and the future is always unknown. Therefore, a government should be cautious. There is another view. How could a union, or any entity, negotiate with a government that will not keep its word? A union agreement is meant to be a binding legal agreement on both parties. Having promised a retroactive wage increase of 10%, how could the Government now renegotiate the agreement to settle the backpay with a non-cash offer of 60% of the unpaid backpay?
This is not to suggest that the Government's use of non-cash payment is new. The government first used this method to pay agreed backpay in the 1990s to public servants who lost increments under the National Alliance for Reconstruction government. The difficulty is that this approach should have been part of the salary negotiations, not an afterthought. This will not be the first time political promises made on the platform to attain office have been reversed upon assuming office. This “unsettled settlement” must be sorted out expeditiously, as it could sour future negotiations. This is not a distant future. Negotiations with public sector unions for two three-year agreements (2020 to 2025) are now due and are another hurdle that could poison the business climate. Delayed government services because of difficult public sector negotiations are in no one’s interest.
The budget increased the tax allowance for pensioners from $90,000 to $102,000 to address the inequitable treatment of pensions for retired public officers. Earlier this year, the Government removed taxes paid by retirees on private pensions. This left retired public officers paying tax on their “government” pensions. The tax allowance increase was meant to cure this anomaly. One could argue that this measure was another poorly thought-out “political promise.”
A key takeaway from the 2027 Budget speech is the stated commitment to reducing the deficit to limit national debt growth. Any deficit must be financed by borrowing, which increases the debt service requirement - the amount spent servicing the debt. The higher the debt, the higher the debt service payments, which last year accounted for 19.1% of government expenditure. This figure is larger than the Public Sector Investment Programme, the money that is technically spent on restructuring the economy.
There are many other matters arising from the Budget speech, which will be addressed in Part 2 next week.
Mariano Browne is the Chief Executive Officer of the Arthur Lok Jack Global School of Business
