Friday, January 19, 2018

The 2013 budget prospects

The 2013 economic scenario in which the budget will be presented is more challenging than 2012.

Three years after the 2009 recession, the global recovery is faltering and the Trinidad and Tobago economy has continued to decline. The Eurozone is a source of concern and the International Monetary Fund's managing director continues to warn of the risk to world economic growth if the Eurozone debt issues cannot be resolved.

More worrisome for the Trinidad and Tobago economy has been the negative developments in the production of natural gas coupled with the depressed prices in the US market and the possibility that other markets will also be negatively affected.

Responding to these challenges, the Minister of Finance, Larry Howai, has sent several warning signals. He has said that the revenue numbers are "challenged". This is an ominous comment as it indicates that government revenues are stagnant or falling. The obverse of this statement is that the expenditure pattern has to be adjusted. There have been several "leaks" which suggest that the projected expenditures are considerably in excess of available revenues. But this is normal at this stage as the Ministry of Finance engages with technocrats in other ministries in smoothening the numbers.

But Minister Howai also suggested that the budget would be in deficit for 2013, and for at least another five years. Several businessmen when interviewed by the press agreed with this position. It is noteworthy that the debt to GDP ratio has moved from an excellent 33 per cent in 2010 to a moderate 50 per cent and climbing, after two budgets. What can be expected after five years? We need only look to the difficulties in the Eurozone to understand that this is not a road to follow.

In another report, Minister Howai noted that the property tax should be reintroduced (albeit "in a different form") as too much revenue was being lost. Notwithstanding the hysteria occasioned by the introduction of a revised property tax in 2009, this is not a significant source of revenue. Land and building taxes generated $150 million at best, not enough to pay for national garbage collection; approximately $75 million to the central government and $75 million to Local Government.

The revised property tax was projected to generate approximately $400 million annually, or less than one per cent of gross revenues, with the majority of the increase coming from industrial plant which would not have been "caught" under the old land and building taxes ordinance. This raises a political issue and it will be interesting to see how it will pan out. At least now the public might be more prepared to listen.

I expect the tax to be reintroduced. Not to do so will both be a dereliction of duty and a failure to bring the administration of land into the 21st century. We await the final deliberations of the cabinet.

Minister Howai has also signalled that the petrol subsidy is unsustainable and will cost approximately $4 billion for this year. Most of us are unaware that oil refined in Trinidad and Tobago and sold on the domestic market as diesel or petrol is bought at world prices and sold at the local subsidised price. Therefore, the higher the international price of oil, the bigger the subsidy. The real issue here is that whatever portion of the subsidy is removed, it will provide an upward or inflationary push in almost every area of economic activity as the vehicles which transport goods and people use diesel. Diesel usage is the component which generates the majority of the subsidy.

This inflationary effect will come at a bad time as food prices are already rising. The prices of corn and wheat, which are staples, have been affected by drought conditions. Floods in Asia are likely to affect rice prices. Neither of these developments is good and is reminiscent of the commodity price increases in 2008. The difference is that now consumers are less able to afford these increases.

The Minister has also talked about the efficiency of the revenue collection process. Like his predecessor, he has not said how he would improve this process. But there already exist well-structured methodologies for doing so in the form of the Revenue Authority. We will have to wait to see how this pans out.

The 2012 budget and supplemental budget projected expenditures of approximately $56 billion with a significant deficit. On demitting office, Governor Williams indicated that Government's capital expenditure programme was delayed.

The third quarter fiscal position released last week reveal that far from a deficit, the figures show a surplus of $1 billion. This means that expenditure programmes have therefore been suppressed or "postponed" in the face of the revenue challenges. One can only conclude that this expenditure suppression and the fall in both foreign direct investment and domestic investment are the reasons why the economy has continued to decline.

Far from the promised "stabilisation" and a "platform for growth", what we have had is stasis. In his maiden address, Minister Howai owes the country many explanations particularly about the current difficulties in the gas sector which is vital to our current situation. More importantly what is the plan going forward?

Mariano Browne is a former

government minister