The 2018 Budget –
In Search of the New Paradigm
On October 2nd, for more than 3 hours, the nation sat through the 2018 Budget Speech.
For nearly a fortnight, the scene was carefully prepared. Through the talk shows and the columnists in the print media there was a constant bombardment about ‘the most serious economic challenge’ facing the nation.
Five days before Budget Day, when the essential allocations had already been completed and the various estimates of expenditure and revenue were tabulated, the Prime Minister organised a Forum titled “Spotlight on Trinidad and Tobago’s Financial Circumstance: The Road Ahead”.
The PM himself made it clear that “Today’s discussion is not meant to be a preparation for the Budget” and reminded everyone that “at the end of the day, the Government has, on behalf of the population, in all these difficult buffeting circumstances, we have to make decisions and move forward”.
This event was another instalment of the dramatic style adopted by this government of forecasting the worst ahead of each of its Budgets. The objective – to make the measures when actually presented appear to be “not so bad”.
So, the stage was set and the presentation came, decrying the ‘false economy’ and making promises of “Changing the paradigm”.
THE BARE BONES
At the end of all the talk, the Budget Speech introduced the essential provisions of the Appropriation (Financial Year - 2018) Bill, 2017 – the fiscal projections for fiscal 2018.
For ease of comparison, below are Budgets 2017 and 2018 as projected:
|
|
|
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Total Revenue ($B)
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$47.441
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Oil Revenue
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$ 2.575
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Non-oil Revenue
|
$44.866
|
|
Total Expenditure
|
$53.475
|
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National Security
|
$ 7.625
|
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Education and Training
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$ 7.222
|
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Health
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$ 6.250
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Public Utilities
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$ 3.293
|
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Works and Transport
|
$ 2.087
|
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Rural Development and
Local Government
|
$ 1.919
|
|
$ .766
|
|
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Housing
|
$ .664
|
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Surplus/Deficit
|
$ 6.034
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|
2018 BUDGET
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|
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Total Revenue ($B)
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$45.741
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Oil Revenue
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$ 6.412
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Non-oil Revenue
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$32.910
|
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Total Expenditure
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$50.501
|
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Education and Training
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$ 7.291
|
|
National Security
|
$ 6.237
|
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Health
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$ 6.028
|
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Public Utilities
|
$ 3.545
|
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Works and Transport
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$ 3.091
|
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Rural Development and
Local Government
|
$ 1.849
|
|
Housing
|
$ 1.005
|
|
Agriculture
|
$ .545
|
|
Surplus/Deficit
|
$ 4.760
|
Note the changes in priorities in Expenditure (allocations to Ministries) which are interesting in themselves. We shall relate that to the policies touted in the rest of the Budget Speech later.
The actual outcome for fiscal 2017 was:
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2017 ACTUAL
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|
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Total Revenue ($B)
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$37.836
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Total Expenditure
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$50.479
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Surplus/Deficit
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$12.644
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So, last year Revenue was $10B less and Expenditure was $3B less. But, the Deficit was $6.6B more or twice the budgeted figure.
But, without sufficient explanation for the $10B shortfall in Revenue collected last year, although Oil Revenue collected was higher than budgeted, the Finance Minister presented his projections for fiscal 2018.
GOVERNMENT’S STRATEGY
The difficulties of the current economic situation marked by:
- · a contracting economy
- · precipitous decline in energy revenues related to the plunge in global energy prices
- · foreign exchange difficulties and pressures on the exchange rate of the TT currency
- · Continuing deficit budgeting
- · Mounting public debt, debt servicing costs and troubling Debt:GDP ratios
- · Declining foreign reserves and drawdowns on Heritage and Stabilisation Fund resources
- · Unchanged historical economic structure with over-reliance on single commodity production
- · Sluggish movement toward the development of new productive economic sectors capable of export and foreign exchange earnings
with other persistent problems in the background.
What then are the government’s strategic goals for addressing these issues?
Within the Budget Speech and otherwise the goals of the government’s strategy have been presented in various banner lines like – Avoiding the IMF and Maintaining Employment.
The 2018 Budget Speech was themed - Changing the Paradigm Putting the Economy on a Sustainable Path. Based on this caption, the Budget measures must be examined to see how and to what extent each or all of them take us in the direction of a sustainable economy.
What constitutes a sustainable economy? How is it to be structured? What macroeconomic indicators would suggest sustainability?
These are some of the indicators which must be defined for objective assessment of achieving such an economy.
However, none of this is addressed in any detail in the 2018 Budget Speech with the theme of putting us on the path of achieving sustainability in our economic affairs, which will make any real assessment of progress difficult, if not impossible.
EXAMINING SPECIFIC MEASURES
As with almost all previous Budget Speeches, the devil is in the detail or what is not said may be more critical that what is.
More importantly, are these measures aimed at putting us on the path of a sustainable economy or are they aimed at narrower goals – balancing the Budget, maintaining low inflation or currency exchange rates, reducing use of reserves or even narrower and more self-serving unstated ones?
Let us look at some of the measures: -
Sharing the Burden of Adjustment
Taxation –
- · Increases in Corporation Tax – 30%
- · Increase in Corporation Tax on Banks – 35%
- · Increased or new Royalty payments on Oil and Gas -
- · Increased License Fees for Private Hospitals – $25-100,00 up from $150
- · Increased duties and taxes in the Gaming establishments
PROS: These measures may bring increases in Government Revenue and narrow the fiscal gap.
CONS: These are illusory and are aimed at misleading workers who are currently on wage freeze and losing jobs and other vulnerable groups with impressions of “sharing the burden of adjustment”.
There is absolutely NO measure proposed or existing to prevent the Banks and Businesses from passing on the cost of the new taxes and fees on to the consumers and their already limited or fixed incomes.
Reducing Transfers and Subsidies
- · Fuel subsidy elimination
- · Harmonising duties on tyres
PROS: Eliminating the fuel subsidy reduces Government Revenue and may narrow the fiscal gap.
CONS: The first two measures will immediately lead to increases of transportation for all purposes. Regardless of the actual effect of these increases on actual transport costs, every kind of business in all goods and services will pass on disproportionate increases in prices to consumers. Increased utility costs will also negatively impact the consumers and fixed income earners
Improving Revenue Collection
- · Self-employed professionals need to pay their fair share
- · New target for establishing Revenue Authority
PROS: Expanding the tax net and improving collection administration may increase Government Revenue and may narrow the fiscal gap.
CONS: Taxation of the self-employed may be counter-productive for the promotion of Small and Medium businesses and may lead to increases in professional fees as costs may be passed on to consumers.
Reducing Expenditure
- Rate Increases for Utilities
PROS: Utility increases may reduce Subsidy costs and Government Expenditure.
CONS: Increased utility rates and transportation fares (PTSC mentioned) will negatively impact consumers and those on fixed incomes including the most vulnerable.
Housing Construction Incentive
- · Cash incentive or land to private developers for specified housing - $100,000 each unit
PROS: This may encourage some housing construction by the private sector and reduce Government Expenditure on housing.
CONS: The actual cost of the specified housing units will not be affected, so the cost of housing to new homeowners will not be reduced.
Diversifying The Economy
- · Export Promotion – facility at EximBank - US$100M
- · Business Development Incentive – Grant – 50 x $100,000
- · Agriculture Incentive – Grant – 20 x $100,000
- · Tourism – increased maximum reimbursement limits – 100%
- · Creative Industries – Artiste Portfolio Development Programme, Export Ready Academy, Production Assistance and Script Development Programme, Garment Production Facility and Tailoring Certification Programme
PROS: These facilities may assist the development of businesses in some of the targeted sectors and may contribute to export earnings or import reduction (agriculture).
CONS: Apart from broad sector identification and a broad export promotion (actually forex facility) to finance inputs, targets for export quantities and forex earnings are not established and may not lead to results that take our foreign exchange earnings to the point of replacement of energy sector earnings or revenues.
COMMENT
Most of these measures are short-term in nature and are not specifically targeted to decided production or export decided measurable goals either in terms of quantified exports or export earning or to segment GDP contribution target.
The only statements in the Budget Speech with a medium-term timeline appears under the heading Medium-Term Fiscal Policy and focuses on anticipated improvements in production and revenue in and from the Energy Sector.
This suggests that, despite all that is said about diversification, that necessary objective for a sustainable economy long into the future is not yet seriously focused on in terms of Government’s policy considerations.
The reliance on Oil and Gas is anticipated to continue.
Even where Tourism is discussed in the context of a new growth sector for the economy, massive reliance is placed on the single project of a Sandals Resort at the Golden Grove Estate in Tobago.
Nothing is said in this Budget Speech, apart from repeated references to anticipated benefits of this yet-to-be-concluded negotiation.
Only the cost of expanding electricity generation and establishing desalination facilities in Tobago in anticipation of increased utility requirements of the Resort are mentioned in the “other” financing by Government in Tobago.
TOBAGO
The allocation to Tobago is misrepresented in this Budget Speech as it is presented in the following manner:
· budgetary allocation to the Tobago House of Assembly for fiscal 2018 is $2.1936 billion - 4.34% of the national Budget
· a further $1.09 billion is allocated to facilitate work in Tobago by Government Ministries
· giving approval to the Assembly to borrow money in 2018 to accelerate its development programme
This gives the impression that this is ‘the largest’ allocation ever given to Tobago. It is all optics which is quite deceptive.
The possibility of the THA itself taking on debt is touted. However, whether or how those debts will be accounted for in the national public debt profile or how their repayment will be financed is mentioned.
The actual allocation is $2.1936 billion.
Government expenditure in Tobago has always and remains a line item of the national Budget and is nothing new. In 2017, similar allocations for building of fire stations and other projects was also included.
However, not a word is mentioned of the cost or financing of expanded or improved air and sea ports to accommodate the increased airlift and sea transport that we are told that this Resort will generate.
THE UNMENTIONED ELEMENTS
There are some very important matters that are not given even cursory mention in the Budget Speech.
The Cost of the Sandals Resort
No figure presented or even mentioned for the cost of building the Sandals Resort which will be like the Hilton and Hyatt arrangements i.e. the construction and infrastructural costs are to be borne by the Government of Trinidad and Tobago. But, not a word in the Budget Speech as if this is of no significance in this difficult economic situation.
The Effect of Deregulation of Maxi Taxis
No precise details of how the deregulation of the maxi taxi transport business will operate is given.
Nothing is said about what its effects will be on the use of the hubs, possible over-operation or under-provision on routes depending on viability may be avoided, levels of fares, etc.
Nothing is said of the possible effects on the incomes of present operators or service to the travelling public.
The one thing that is certain is that the importers and distributors of maxi taxis will benefit.
CONCLUSION
The 2018 Budget Speech reveals more in what it does not expressly say about the thinking and approach of the government to the deep-seated and fundamental economic issues facing this nation.
Despite:
- · the references to its National Development Strategy (2016 – 2030) which is its sole creation
- · the Vision 2030: National Performance Framework (2017 – 2020) which suggests that a long-term strategic approach is being implemented and evaluated
- · the convening of its talk-shop forum titled “Spotlight on Trinidad and Tobago’s Financial Circumstance: The Road Ahead” 5 days before
- · the continuous messaging about how critical the situation is and 2018 being a “Make or Break” year
There is nothing really new or creative presented.
Even the budgeted figures are almost a carbon copy of last year’s Budget.
The objective is very narrow and short-sighted.
As Imbert himself has put it “T&T has to get out of the deficit budget syndrome...” .
This Government is haunted by the ghost of 1986 and intent on not going to the IMF or appearing to be focused on keeping jobs.
What it really means is – We don’t want to end up like the NAR.
It is repeating the same positions presented in the last 2 Budgets, discussing the same projects like Sandals, Revenue Authority, sectors for diversification and so on.
It is disguising its policy failures like the Public-Private Partnership in Housing it touted last year in which the only project of significance was one with one of its close associates – Elias.
It is mystifying the underlying causes of the present recession and economic crisis and how these are linked to the very nature of our economic and political systems.
It is attempting to present itself as being capable of solving the fundamental problems and the immediate consequences of this chronically failed economic construct that cannot provide any sustainable development that is without repeated and deeper crises.
In short, using populist talk about “Sharing the Burden”, being “a Government (not) driven only by requests of big business” and making everybody pay their “fair share” to hide the real goal of ensuring the maintenance of the rates of profit for the monopolies at the expense of the majority.
What this Budget Speech shows is that the members of this society need to pay even greater attention to the realities of the situation and the real workings of the economy and politics.
The majority in the society must not continue to accept the empty talk about restructuring the economy while all that is proposed is the same old structure with dependence on oil and gas.
We can no longer accept the empty talk about developing agriculture which has been ruined over the years since Independence because of the singular focus and reliance on the hydrocarbon mono-commodity.
We can no longer accept that going from crisis to crisis based on the fortunes of “the energy price shock that we have been subjected to”; that the present and future is entirely out of our control.
We can no longer accept that our fortunes and those of our economy depend on the good or bad policies of one or other party in power or which of them is more or less corrupt.
We must make our own analysis, understand the workings of the economy and the economic systems and what we need to do about it to bring about a future that is certain and an economy that can meet the needs of our population.
We must demand an end to the charade of ‘consultation’ like that fake Forum which the Prime Minister himself made it clear would change nothing in the Budget which was already decided.
This Budget Speech must remind us that we must be able to argue things out, to understand why things are going as they are and by our analysis and developing our own solutions make ourselves capable of fully participating in the decision-making process and setting the agenda for the economy and the entire society in the interest of the majority and not the minority 1 per cent.
Our very lives and future depend on doing that.
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