Home' Trinidad and Tobago Guardian : September 14th 2014 Contents SBG6 NEWS
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt SEPTEMBER 14 • 2014
The Sunday BG has always
been very clear in its mis-
sion to bring its readers
the most useful and time-
ly financial advice. Over
the past five months
we ve explored savings
and investment options,
pensions, mortgages and real estate and hope
that you, the reader would have benefitted
from these pages.
This week the Sunday BG revisits two of
the couples in one of the stories in our very
first edition, John and Mary and Michael and
Sarah, who when you last saw them were
searching for affordable homes. Both couples
fell into what would be considered middle
income groups, with John and Mary earning
a combined monthly income of $20,000 and
Michael and Sarah around $12,000.
Catching up with them a few months later,
the Sunday BG will be examining how they
would fare with new tax allowances for first
time homeowners, assuming they found a
home they could afford and, how much new
provisions for increased approved annuity
allowance would affect them.
In last Monday s budget, Finance Minister,
Larry Howai, announced that tax deductions
for first time owners of a house on mortgage
interest would increase from $18,000 to
$25,000. That s from $1,500 a month to $2,083
a month. Meanwhile, deductions for approved
annuities increased to $50,000 from $30,000.
After a personal tax allowance on their gross
yearly salary of $144,000, Michael and Sarah
have an annual taxable income of $84,000.
Prior to 2014, they would have been able to
take advantage of the tax breaks on their first
time home and their annuity of $18,000 and
This would have made given them total
deductions of $48,000. With the increases in
this year s budget, however, this goes up to
$75,000, taking their taxable income down to
Meanwhile, John and Mary s monthly
income of $20,000, gives them an annual
gross income of $240,000. With a personal
allowance of $60,000, John and Mary are left
with a taxable income of $180,000. Of this,
$75,000 can be claimed for their new home
and their approved annuity bringing their tax
bill to $105,000, an improvement over 2013 s
A flat tax of 25 per cent is applied to Michael
and Sarah s 2014 taxable allowance of $9,000.
When the result ($2,250) is subtracted from
their taxable income, Michael and Sarah can
only be taxed on $6750 of their yearly income.
This is significantly lower than the 2013 figure
of $36,000, which, subject to flat tax of 25
per cent would have left them with tax pay-
ments of $9,000. Their fellow couple John
and Mary, after the flat tax is applied will only
pay $26,250 in tax, whereas in 2013, they
would have had to pay $33,000.
Middle income earners save
big with new tax breaks
T&T s oil production should propel growth
again, Government is effective in managing
the US shale gas boom, and Petrotrin and
government bonds offer "attractive current
yields," New York-based Oppenheimer has
said in an emerging markets research note
released to Wall Street investors last Monday
"The Government has been effective in
diversifying natural gas export destination as
the market changed due to the US shale gas
boom," Oppenheimer said. The analysts were
giving their forecast that oil production should
begin to propel growth again.
"Recently energy production slowed down
due to widespread maintenance works, cutting
GDP growth but capacity is now near full
potential and should propel growth in the
near future, in our view," Oppenheimer said.
The country has an "improving economy
based on energy sector," Oppenheimer said.
Economic activity saw a turnaround in 2012
posting positive growth of 1.3 per cent for the
first time since 2009. After a 1.6 per cent
increase in output in 2013, economic activity
is expected to garner speed at 2.3 per cent,
Oppenheimer said, citing the International
Monetary Fund (IMF) figures. "Inflation is
expected to stay under control," Oppenheimer
Improved economic prospects are fueled
by investments in the energy sector on which
the country is heavily dependent, the analysts
said. Energy production accounts for more
than 40 per cent of gross domestic product
(GDP) and 80 per cent of exports, and half
of government revenues, Oppenheimer said.
Energy sector employs
less than five per cent
"Still, oil production has declined over the
last decade partly due to maturing fields. In
response, the Government has been active in
providing tax incentives for investments to
boost oil reserves and production and has
opened onshore and offshore bidding rounds,"
Oppenheimer said. "While the energy sector
is a key foundation for economic growth in
the country, it only generates less than five
per cent of employment and exposes the econ-
omy to shocks in energy prices."
Turning to the financial crisis of 2009,
Oppenheimer said it impacted T&T in two
"Not only the economy suffered the gen-
eralised impact of the great recession, but also
had a more direct shock from collapse of the
Colonial Life Insurance Company (Clico), the
largest conglomerate in the country and the
Caribbean," Oppenheimer said.
Explaining to investors that Clico s exposure
to the T&T economy was 10 per cent of GDP,
and its assets represented 25 per cent of GDP,
Oppenheimer said it posed "a systemic risk
for the country and the region. Thanks to its
strong balance sheet, the Government had
the flexibility to immediately intervene to pre-
vent a systemic crisis, in an otherwise relative
healthy financial system."
Oppenheimer recalled that real economic
growth declined to -3.4 per cent in 2009 for
the first time in 15 years, and was down from
an average 8.3 per cent in the previous eight
years. "Non-energy economic growth took
the major hit as confidence in the domestic
financial system plummeted and credit halted.
Non-energy growth remained negative for
three years until 2012.
Economic growth related to the energy sec-
tor, fared the crisis better but was later hit by
lower natural gas prices and changing markets,"
The energy sector generates high fiscal rev-
enues allowing the country to maintain "a
relative moderate debt burden," Oppenheimer
"As a testament of the country s financial
flexibility, at 30 per cent in 2013, the non-
financial public sector (NFPS) debt burden
was among the lowest in Latin America and
rating peers, even after incurring a cost of
11.9 per cent of GDP in financial support to
Clico over four years," Oppenheimer said.
Since Oppenheimer s research, however,
Finance Minister Larry Howai, during the
2014-2015 budget debate on September 8 (the
same day, Oppenheimer s research came out),
said the country s debt to GDP ratio is now
43 per cent.
Fiscal performance suffered significantly
during the financial crisis and the Clico bailout,
reaching a record deficit of 5.6 per cent of
GDP in 2009, Oppenheimer reminded Wall
Street. Since then the fiscal position has
improved, but remains dependent on energy
related revenues which make fiscal accounts
vulnerable to external shock prices, particularly
given the relative inflexible fiscal expenditure
profile, Oppenheimer said.
Noting that total current spending represents
26.6 per cent of GDP, of which energy sub-
sidies and social transfers account for 17 per
cent of GDP, Oppenheimer said "interest pay-
ments are modest," reflecting the "moderate"
and "good profile" debt burden.
Referring to the government s issuance of
local bonds (borrowing) to finance the deficit,
Oppenheimer said, "T&T benefits from ample
domestic financing of its deficit."
No clear strategy to end deficit
Oppenheimer said: "The Government has
policy objectives to bring the fiscal accounts
into balance by 2016, but it does not have a
clear strategy to achieve it, in our view."
The fiscal deficit for 2014 is projected to
be 2.5 per cent of GDP according to the IMF,
after accounting for extraordinary items and
"The debt trajectory is not explosive, but
as the IMF and rating agencies suggest, a
more diversified economy that provides a
broader tax base would strengthen the financial
standing of the economy," Oppenheimer said.
"Finally, parliamentary elections in 2015 could
post political pressures on fiscal accounts."
Oppenheimer tells Wall Street...
Petrotrin 2019, Gov't 2020 bonds' yields attractive
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