Budgetary Artifices

The Federal budget proposal for 1995 is the third in a row that says there will be no inflation next year and that public spending will take up only 41% of the social product. I wonder who will again fall for this old trick. I definitely won't. Nor will all of those who this week bought or sold meat, cheese or eggs at the green market. It is not intended for bankers and directors. The workers also know how much they work and earn and the pensioners know how large their pensions are. The only ones left are the ones writing the budget. And that is the problem: the authors of the budget are the only ones believing their own tricks.

This year's social product was exaggerated in order to present public spending as lower than it really is. This was done by calculating the real social product according to prices at the end of the year and not according to average annual prices. Since prices have risen throughout the year, this accounted for 18% of real social product growth. The trick is transparent: the inflation that will be taken over into the next year has been incorporated in the assessment of this year's social product.

Is was then presumed that social product would grow 7% a year and that the December price level would be maintained throughout 1995. And that is how the authors calculated that the national product would stand at 21.5 billion dinars in 1995 - without inflation!

The chief intention is to present the real growth in federal spending of 26% in regard to this year as an invariable portion of the federal budget in the social product. Just like the federal budget, all other public expenditures would enjoy similar rights.

The other intention is to achieve the 7% of real growth of the social product without new price increases in 1995.

The budget authors want to have their cake and eat it too. If they can't, they want to at least secure a better starting-point for the state, even through inflationary increase.

What is essentially in question here is a variance of target inflation, where one part of the inflation is taken over into the next year: at the same time, efforts will be exerted to curb any new price increases. The only question that remains is how this will be carried out, i.e. what will prevent new price hikes?

Certainly not the proposed budget increase. The existing dinar exchange rate cannot help either. Devaluation has been tacitly carried out already and the revision of the exchange rate will be necessary sooner or later. This is why the intention to maintain the prices at the December level is simply impossible.

Instead of relying on the existing exchange rate, it is possible to devaluate the dinar once and reduce the federal budget increase to only 7% in regard to this year; the former makes no sense without the latter and vice versa. All other public expenditures should be proportionally reduced. The money issue should be rid of the need to create cheap credits and it should be adapted to the regular servicing of the social product. The wage policy should be conducted gradually and openly and family savings should be linked to the state budget.

Finally, one should be aware of the fact that these measures can only buy time for taking necessary steps and reforming ownership, firms and banks over the next six months. That is the same task that should have been undertaken before abandoning the Program of reconstructing the monetary system. The Program still awaits us and the trick of exaggerating the social product and concealing excessive state spending only shows the authorities' intention to essentially change nothing.