Home' Trinidad and Tobago Guardian : September 11th 2014 Contents SEPTEMBER 2014 • WEEK TWO www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG3
Chief editor-business: ANTHONY WILSON
Editing and design: NATASHA SAIDWAN
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Trinidad and Tobago's
(T&T) 2015 budget esti-
mates that the Treasury
will collect $59 billion in
revenues for the financial
year that ends on Sep-
tember 30, 2015, accord-
ing to the 2015 Draft
Estimates of Revenue, one of the budget doc-
uments distributed in Parliament on Mon-
The one area of revenue collection that is
projected to increase by more than double
digits is Value Added Tax (VAT).
The estimate of collecting $59 billion in
revenue is based on the expectation that VAT
revenues will increase by 36 per cent from
the revised estimate of $5.26 billion in 2014
to $7.18 billion in 2015. That's $1.92 billion
more in VAT receipts in 2015 than was col-
lected in 2014.
Now, the expectation that VAT revenues
would grow by 36 per cent in the next fiscal
year may be based on the fact that the Min-
istry of Finance is making a significant effort
to reduce the backlog in outstanding VAT
balances owed to businesses in this country,
according to the Minister of Finance.
As Finance Minister Larry Howai said dur-
ing the budget presentation on Monday: "The
VAT backlog owed to businesses which
amounted to over $5 billion in 2010 has been
substantially reduced and we anticipate that
the entire amount now outstanding will be
settled by the end of the new fiscal year."
But is the expectation of a 36 per cent
increase in VAT collections realistic? What is
this assumption that VAT revenues will
increase by 36 per cent in the 2015 fiscal year
The assumption of an increase in VAT rev-
enues by more than one-third must be seen
in the context of the erosion of the VAT base
by the expansion in the number of food items
that have been zero rated by over 4,000 in
Central Bank economist Joseph Cotton, in
his 2012 research paper on non-oil revenues
in T&T, quoted an estimate in a 2006 ECLAC
paper that suggested that the extension in
the list of zero-rated or VAT-exempt goods
had led to a reduction in VAT revenue by as
much as 25 per cent in T&T. He also con-
cluded, with some provisos, that the efficiency
of VAT collection in Barbados and Jamaica
surpassed that of T&T.
Cotton argues that the comparisons of VAT
efficiency across the three Caribbean countries
"suggest that there is scope for improving
the revenue performance of VAT in the
The realism of increasing VAT revenues in
2015 should also be seen in the context of the
fact that there are hundreds, if not thousands,
of mostly small business places in this country
that have never been registered by the VAT
office, which is one more way in which busi-
ness in this country has been allowed to evade
its responsibility to pay their taxes.
It's interesting that Mr Howai estimates
that he will collect 7.5 per cent less money
from the energy companies in 2015 than the
revised estimate of $18.45 billion in 2014.
But what happens to the $17.07 billion esti-
mated energy revenues, if the average oil price
drops to less than the US$80 a barrel and the
netback natural gas price to less than US$2.75
per mmbtu upon which the budget is based?
On Tuesday, according to an Associated
Press report, the benchmark Brent blend for
October settlement fell by US$1.04, or one
per cent, to US$99.16 a barrel, the lowest
close since April 18, 2013, and West Texas
Intermediate for October delivery closed at
US$92.75 a barrel.
Oil prices are falling because crude supplies
in the world are increasing faster than demand.
A Bloomberg report, citing a US Energy
Information Administration forecast on Tues-
day, said world petroleum supply will increase
by 1.6 million barrels a day this year while
consumption will rise by one million.
So it is clear, at least to me it is, that there
is significant risk that there could be "slippage"
in the amount of revenue that the Government
collects in the 2015 fiscal year.
It is also clear to me that there could be
an increase in the amount of money spent---
by way of the now customary supplemental
appropriation---before the general election is
called sometime next year.
As it stands, the amount of money that is
estimated to have been spent in 2014 is sig-
nificantly higher than the amount that Mr
Howai indicated to Parliament back in Sep-
In the 2014 budget speech, Mr Howai said
the Government was projecting total expen-
diture of $61.39 billion net of capital repay-
ments and sinking fund contributions.
In the 2015 Draft Estimates of Expenditure
document, however, the revised estimate for
the amount of money spent in 2014 has been
put at $67.21 billion, which includes $2.16
billion that is a charge on account of public
debt (capital repayment and sinking fund).
Net of capital repayment and sinking fund
contributions, the total revised estimate of
expenditure during 2014 is $65.08 billion
(which is the exact figure reported in the
Business Guardian budget special last week).
But even the figure of $67.21 billion is likely
to increase when the Government's accounts
for 2014 are closed off at the end of this
Including capital repayment and sinking
fund contributions, the total estimate of
expenditure for 2015 is $67.19 billion, which
is marginally less than the $67.21 billion the
2014 revised figure.
This means that the 2015 budget is actually
marginally less than the revised estimate for
What is the chance that the Government
will stick to the $67.21 billion figure for 2015?
In the context of an imminent general elec-
tion, I would project that that chance is zero,
unless there is a cataclysmic collapse in the
prices of T&T's energy exports. And even
then what the Government is likely to do is
increase its borrowing on the domestic capital
So, in my view, the Government is likely
to collect less and spend more during the
2015 fiscal year.
The Draft Estimates of Revenue documents
that the Government will need to borrow
$7.51 billion to finance the country's budget
deficit in 2015.
But if the Minister of Finance increases
expenditure in 2015 by the amount he did in
July and he collects as much VAT revenue in
the 2015 fiscal year as he collected during the
2014 fiscal year, the country's borrowing could
be closer to $12.5 billion.
The potential for the fiscal deficit to balloon
during 2015 must be seen in the context that
the Government's election-year expenditure---
and the dash to complete projects by mid-
2015---is likely to heat up the economy enough
for the Central Bank to begin increasing the
whole structure of interest rates in this country
within the next 12 months.
If that happens, the Government will be
forced to pay a higher rate of interest on the
bonds that it issues to finance the fiscal deficit.
On Monday, the Government issued a very
interesting two-page information memoran-
dum in which it stated that it proposed to
raise $2.5 billion through the issue of a 12-
year bond at a fixed rate of 2.8 per cent. This
bond, according to the information memo-
randum, "is the second central government
bond issue for the fiscal year 2013/2014 and
is intended to assist in financing the fiscal
year 2013/2014 budget."
While it is great for the Government's
finances that it is able to borrow so much
money for 12 years from financial institutions
and high net-worth individuals at such a low
interest rate, I would wager that the chances
of the Government's borrowing yield curve
being the same in 12 months' time as it is
today are slim to none.
A number of factors---including the distinct
possibility that the US Federal Reserve could
begin increasing rates on US-dollar bonds by
February---are likely to push up the T&T Gov-
ernment's cost of borrowing in the next 12
And even the projection of a $7.5 billion
2015 fiscal deficit is based on the assumption
that the energy companies, which have been
beset by curtailment issues of late, will be
able to come up with the $17.06 billion that
they are estimated to bring in for 2015.
How will Mr Howai deal with the Govern-
ment's fiscal accounts if he collects less money
than projected, while spending more money
Could it be that Mr Howai is hoping that
a favourable resolution of the CL Financial
matter will provide the country with the addi-
tional revenues in 2015?
Will Mr Howai break his pledge to allocate
a significant percentage of the CL Financial
proceeds to lowering the country's total debt---
which was estimated at $71.45 billion as at
the end of March 2014?
(T&T's total debt includes the debts of the
Government, statutory authorities and state
Does 2015 budget put T&T at risk?
Members of the People's Partnership Cabinet, from left, Lincoln Douglas, Prakash Ramadhar
and Tim Gopeesingh, applaud Minister of Finance Larry Howai on the presentation of the 2015
budget. Also in photo are Prime Minister Kamla Persad-Bissessar and Housing Minister Roodal
Moonilal. PHOTO: ABRAHAM DIAZ
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