Cuban State Budget Prioritizes Social Programs

Regarding subsidies that will be maintained, the Minister emphasized financing of the retail cost of food items guaranteed to children and pregnant women, as well as a basic layette for newborns, plus most medications

Author: Gladys Leydis Ramos López | internet@granma.cu

Author: Miguel Angel Febles | internet@granma.cu

December 30, 2020 20:12:56

Photo: Ministry of Finances and Prices

Photo: Ministry of Finances and Prices Photo: Granma

The monetary re-ordering process underway necessarily implies changes for Cuba’s 2021 state budget. Given the effort to ensure the most appropriate use of resources, the plan includes eliminating excessive subsidies, without foregoing its predominately social character, with human beings at the center of the country’s life.

This was reiterated on the Mesa Redonda television program recently by Meisi Bolaños Weiss, minister of Finances and Prices (MFP), who explained that, during the year coming to an end, the country faced the tightening of the U.S. blockade; a worldwide economic crisis due to the COVID-19 pandemic and a decline in the level of productive activity, including tourism which severely affected the arrival of hard currency to the country and had negative consequences for other sectors which supply and support this industry.

She explained that this difficult situation made re-adjustments to the country’s economic plan and state budget necessary, and led to a significant increase in the deficit given the reduced income generated.

“As a result of the decision to put human beings at the center of our attention and confront this pandemic, the budget allocated a bit more than 1.3 billion pesos, even before the year ended. We are talking about actual figures, that have been made available to sustain and make possible the preventative work and the response to COVID-19. The budget will maintain this guarantee,” she stated.

Addressing the salary reform, the Minister noted that this is one of the budget’s social responsibilities, including the funding of increased income for both the budgeted and enterprise sector, as well as pensions and assistance benefits.

She stated that, although implementation of the ordering would begin January 1, 2021, a salary advance was to be paid in the month of December. This implied additional expenses to fund this measure in budget-supported entities and pensions.

She indicated that this decision would mean an increase in the deficit, estimated at more than eight billion pesos, leading to a total deficit in 2020 “around 20,733,000,000 pesos.”

The annual budget for 2021, the first year of the Monetary Ordering Task, recently approved as law by the National Assembly of People’s Power, reflects the projected effect of the gradual correction of wholesale and retail prices, according to the Minister who noted that the budget will take on new dimensions in terms of expenditures and income, which will rise given higher prices for goods and services.

Given the budget’s social character, she recalled, all goods and services acquired to support basic services for the population are provided by the enterprise sector, stating, “Cuba’s budget is predominately social, and everything acquired in the economy to finance basic sectors and services is reflected in the enterprise sector.”

Nonetheless, she added, there is a limit, and anti-inflationary measures are being taken to ensure that the increase does not surpass the level designed in the budget.

“Not taking the year 2020 as a reference, given its complications, we are talking about a deficit that in 2019 was around seven billion pesos. We are now talking about a budget that is projecting a deficit of 86,000,000,000 – growing ten times over,” she stated.

In terms of goals for the coming year, Bolaños recalled that the priority is economic recovery with the implementation of the approved social-economic strategy, saying, “We will have declines in income, financial tensions, but the conditions are being created in the country to strengthen exports and production in strategic sectors, which will have results over the course of 2021.

“This is why we are not renouncing the objectives or indicators projected in terms of the GNP and development of the economy in different stages of the Economic Plan through 2030.”

BUDGETED GUARANTEES IN 2021

Of the almost 375 billion pesos in expenditures, some 65% is devoted to supporting the budgeted sector, indicating that, even under the conditions in which the country finds itself, basic services for the population are to be sustained within the monetary re-ordering context.

In addition to sustaining Public Health, for example, education will also be prioritized in 2021. Likewise, the Minister stated, subsidies for construction materials will be maintained for low income households which need to repair or expand their homes.

She explained that social security contributions are paid by employers, both state and non-state, but this is not enough to meet needs as a result of population aging. The cost of funding pensions, over a long period of time for the number of persons with the right to retire, is greater than this contribution. Social security funds always show a deficit, which is covered by the state budget. Likewise, persons caring for a family member, and not able to work outside the home, receive help from the country by way of social assistance benefits, also assumed by the state budget.

Addressing another issue, the Minister indicated that the budget reflects the elimination of excessive subsidies, which is a significant change.

She noted that a reserve of 18 billion pesos has been designed within the budget to support enterprises that are not able to generate enough income to cover their expenses, with the launching of monetary re-ordering, given increased salaries, the effects of devaluation, and higher costs.

Regarding subsidies that will be maintained, the Minister emphasized financing of the retail cost of food items guaranteed to children and pregnant women, as well as a basic layette for newborns, plus most medications - the latter requiring more than seven billion pesos. She also noted that 716 million pesos have been budgeted to provide financial support for persons not able to assume the cost of living as a consequence of monetary re-ordering.

CONTRIBUTING TO SUPPORT SOCIAL PROGRAMS

The impact of monetary and financial ordering on the state budget’s income was explained by Deputy Minister of Finances and Prices Vladimir Regueiro Ale.

First of all, he clarified that income has been projected on the basis of the modest economic growth foreseen next year, which will require responsibility on the part of all actors, fulfilling their duty to contribute to sustaining the country’s social expenses.

He reported that income of 291,259,000,000 pesos is projected, a figure without precedent in previous budgets, but insufficient, since this amount only covers approximately 75% of planned expenses.

The most significant change, he explained, is in the source of this income. Previously, non-tax income (fees, tariffs, etc.) gradually increased to represent 74% of the total, but in the first year of monetary re-ordering, this will be on the order of 39%, while tax income will reach 61%.

This last category includes taxes on earnings and personal income, implying an improved application of the principles of generality, equality and capacity to contribute, upon which our tax system is based.

Regueiro reported that income linked to the performance of enterprises, taxes on earnings and returns on state investments, represent 30% of the total (87,367,000,000), while taxes on personal income should generate 6,844,000,000 pesos.

Other changes in the structure of taxes include the elimination of taxes on wholesale sales, and special taxes on alcoholic beverages and other products which have been suspended, except in the case of retail sales of vehicles.

The Deputy Minister explained that these modifications are being implemented to reduce the tax burden on non-state forms of economic management.

He noted that the non-state sector will see their basic exemption increased from 10,000 pesos to 39,120, and announced that, for the coming tax period, all self-employed individuals will be exempted from their annual obligation if they have been unable to work, or seen their activity limited, for a period of six-months or more, as a result of the COVID-19 pandemic’s impact and preventative measures taken.

He additionally reported that the territorial contribution is to be maintained at the standard 1% rate and municipal administrative councils have been authorized to use 50% of this income.

The Budget Law approved for next year stipulates that the levying of taxes on idle agricultural and forest land is to be postponed, in all provinces and the Isle of Youth special municipality, Deputy Minister Regueiro added.

Yahily García Poma, director of Income Policy at the MFP, additionally clarified that the tax rate of 4% on work contracts abroad is not new, and was in fact established in 2013; while Deputy Minister Lourdes Rodríguez Ruiz addressed changes in the prices the state wholesaler will pay for agricultural products.