General Budget Draft FY 2020/2021 – Theoretical Dimension

The FY 2020/2021 budget draft drew a broad and healthy debate most of which could have been reduced had the Public Administration been aware to deal with it from the perspective of the State sustainability and in accordance with the principles of public finance science and its scientific basis, and to clarify this, we use two examples from reality. In public finance fiscal deficit is well defined; revenues which finance its expenditures should come from a sustainable economic activity. According to this definition, most of the oil revenues come from selling or replacing an exhaustible asset, either by its consumption i.e. its exhaustion or by scientific longevity i.e. less significance. Oil is subject to pressure from both elements. The above definition which places the state’s sustainability before its administration’s is what Norway adopted by its public administration-both the government and the parliament – which allows using only 4% of oil revenues to finance the public finance and only when necessary, first oil selling is only a substitution of an asset and not a revenue and second to avoid being struck by the “resources curse” and undermine its economic competitiveness as it did to the Netherlands before. The other opposite example that adopted the administration’s sustainability by consuming the state’s resources is Venezuela, which possesses the largest conventional oil reserves in the world with more than 300 billion barrels which is now deemed a failed state.

If Kuwait, which we have mentioned repeatedly, adopts the principles of public finance to switch its budget classification, then the main source of financing its public expenditures becomes the income of the alternative source for oil, i.e. the income of its sovereign fund whose function should change from an unknown target to an average return that achieves the largest amount of financial balance. Then, expenditures must be controlled by halting their waste and corruption because the Council of Ministers becomes obligated to commit itself to a high coverage rate for them from renewable or sustainable investment income. Then, it becomes necessary to have a tax system on high incomes and profits even if it starts at a low level to represent a second financing source. Its importance lies in the difficulty of passing waste and corruption if it comes from tax revenue. Then comes directing support to those who deserve it, i.e. the support may increase to those who really need it but it should not go to those with high net worth because it simply becomes a negative and reverse tax and not due. The public budget expenditures that cannot be covered by its revenues can be covered by part of oil revenues provided that this contribution decreases by time, with their percentage decrease declared and complied with throughout its entire stages because the country contains a group of young women and men who will face massive unemployment unless we secure them with the financial sustainability. In addition, oil is subject to huge pressures for reasons of scientific longevity and environmental concerns. It suffices to mention that its barrel is sold now for about half of its 2013 price without taking into account the inflation impact, thus a programmed decrease in oil dependency will only save the country’s public finance and its employment.

Returning to the definition of both the “International Monetary Fund” and credit classification agencies and their conclusion that Kuwait will not achieve a fiscal deficit, these conclusions are valid from their point of view but are wrong from our point of view and from the point of view of public finance science. They are not concerned with what happens to Kuwait beyond the short term. Their audience is different and is limited to those who wish to deal with Kuwait, and not Kuwait itself.  The shortcoming in our public administration is its inability to formulate visions that guarantee economic and financial stability for the sake of the country’s sustainability.