Governor General Sir Howard Cooke outlines the government's programmes for the 2004/2005 legislative year as he delivers the Throne Speech in the House of representatives, yesterday. (Photo: Michael Gordon)

FINANCE Minister Omar Davies yesterday tabled a $328 billion budget for the new fiscal year, which begins today, but with approximately 70 per cent of the allocation earmarked for debt repayment, Davies will have precious little left for housekeeping and capital projects.

In fact, analysts pointed out last night that when inflation is factored in, the finance minister will be in a tighter fiscal bind than appears to be the case on the surface.

The budget, in nominal terms, is 17.5 per cent higher than the $279.16 billion of the revised estimates for 2003/2004 which Davies tabled earlier this month.

But inflation for the 2003 calendar year was 14.1 per cent and is likely to be over 15 per cent for the fiscal year, which will make for a real increase in expenditure of under three per cent.

However, when the overall debt servicing bill of $228.42 billion is taken into account, Davies will have a mere $99.73 billion to deal with all other government expenditure. This is actually $8 billion or over eight per cent less than the Government had for non-debt expenditure during the last fiscal year.

"It is going to be a very tight budget," financial analyst Colin Steel said last night. "But the minister has a plan to get a balanced budget by the next fiscal year. When you have limited resources, you just have to prioritise."

The government has been under pressure from the domestic and international debt market to reduce a fiscal deficit that in 2002/2003 ran at over 7.7 per cent of gross domestic product.

Although he imposed a $14 billion tax package, the largest in the island's history, in an effort to bring the deficit down to between five and six per cent during the year that ended yesterday, Davies has projected that the deficit will be closer to seven per cent.

He has, however, pledged to slash the deficit by up to two percentage points this fiscal year, and balance the budget by 2005/2006.

Most analysts last night said that much will turn on how Davies is able to manage the debt and the wage bill, the two biggest items in the budget. Wages and salaries grew by about 60 per cent over the past five years.

Of Davies' projected expenditure, $228.42 billion, or 69.6 per cent will go to service debt. Last year, debt servicing accounted for a little over 61 per cent of the budget.

Amortisation this year will cost just over $132 billion, nearly $52 billion or 64.5 per cent more than last year. Davies' projection for interest payment is $96.3 billion, up $5.6 billion or six per cent.

Steel, like others, was a bit surprised at the projection for interest costs.

"I thought interest payments would be flat, at around the same level of last year," Steel said. "Perhaps the minister is being conservative."

It was not clear whether Davies had factored into his projections, an initiative under the private sector-led Partners for Progress, part of which would include domestic financial entities converting up to $12 billion of high-cost government debt to longer-term US-dollar indexed instruments at lower rates.

The specifics of the budget's wage component was not available last night, but most public sector unions have agreed to a three per cent cap on pay increases for the next two years in an exchange for the government not slashing up to 15,000 jobs.

In the last fiscal year, public sector wages cost about $61 billion, but that included a substantial one-off retroactive payment. "I would expect that the wage bill could be a little lower this year, perhaps in the region of $58 billion," Steel said.

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