When it comes to government, size does matter

Puerto Rico Governor Alejandro Garcia Padilla proposed and passed a balanced budget.  Congratulations, Mr. Governor.  Unfortunately, its not really a balanced budget.  Puerto Rico’s economy continues to shrink, job losses continue to mount and a confusing myriad of taxes continue to impede free trade and job creation.

While the Puerto Rico Treasury Department (Hacienda) claims revenues are up, the Commonwealth had to go searching for additional funding for the new fiscal year.  In the end, the new budget will likely fall half a billion dollars short, perhaps as much as a billion; to add to the Islands already insane 110 billion dollars in debt.

Just for comparison, Argentina defaulted more than ten years ago with a debt of over 110 billion dollars and went into a second selective default this year on much, much less.  Argentina has a population of 41 million people and a GDP of more than 450 billion.  PR has a population of just 3.5 million, no natural resources of significant size and a GDP of just over 100 billion dollars.

Get the picture?

Of Puerto Rico’s total employed of about 950 thousand, a staggering 285 thousand are employed at some level of government.  Just for some perspective, if the government decided to give a one dollar per hour raise to all public employees it would cost more than 500 million dollars in just the first year.

The island raises about 9.5 billion dollars a year in tax revenue and receives more than 21 billion dollars in federal funding from the United States (most of that in direct payments to individuals) and yet, has dug itself into an abyss of debt.  So what is the problem?

It is very simple: the government is too big.  In order to balance the budget and keep it balanced over the long term and continue paying the billions of dollars each year needed to service the debt and actually reduce it, you must reduce the size of government.

It is time to privatize the Electric Power Authority and the Water and Sewer Authority and it is time to reduce the entire government by 50%.  As the size of government is reduced the tax structure can be reformed to make it more efficient and less a stumbling block for business. 

Despite promises from the governor, if the island does not receive approval for bankruptcy protection or a bail out from Uncle Sam, the cuts will be coming, fast and hard.