Home' Trinidad and Tobago Guardian : October 11th 2015 Contents A20
Sunday Guardian www.guardian.co.tt October 11, 2015
You never let a serious crisis go
to waste. And what I mean by that
it's an opportunity to do things you
think you could not do before.'
---Rahm Emanuel, Mayor of Chicago
On October 5, the Minister
of Finance, Colm Imbert,
delivered his first budget in Par-
liament. The new PNM Govern-
ment stepped into a tight spot.
No one is yet using the word,
but T&T is officially in a reces-
sion (defined by six months of
After discussing the budget
with an economist, here is my
first impression. T&T is moder-
ately wealthy with a GDP per
person of US$19,500 (similar to a
low-middle income European
country). We remain an oil-and-
gas-based economy as we have
failed to diversify. In 2012 when
the Government s income from
oil and gas was $20.5 billion
(TT), the split was 65 per cent
from gas and 35 per cent from
oil.But in 2012 the price of oil was
US$100. Then from July 2014 it
started its slide down by more
than half to its current rate of
US$45. Note that price of gas
moves roughly in tandem with
that of oil.
The income from oil and gas
for the 2015-2016 financial year
is projected to be $3.26 billion
(TT), a drop of about $17 billion
(TT) from 2012. The Govern-
ment s annual budget is $62 bil-
lion (TT), so that the shortfall in
income is about 25 per cent.
Standard economic principles
suggest that a reasonable and
rational government would spend
its income "counter cyclically." So
when income is high and the
economy is growing it should
restrain spending and save what
it can. Conversely, when GDP
falls (in a recession) it should
draw down on its savings and/or
borrow money to increase its
spending to maintain the GDP.
The correct course for govern-
ments does not apply to personal
households. In fact, it s the
That makes sense since in a
crisis if every household reduces
its spending, the Government
does the same. The GDP will fall
even faster making both the
country and the households in it
poorer. So we need the Govern-
ment to counteract the actions of
households in T&T by increasing
Unfortunately we have not had
a reasonable and rational govern-
ment in T&T for the last 20
years, as each government spent
wildly from higher oil and gas
prices as the economy grew. (The
Government budget in 2001 was
$14 billion (TT). In 2015 it s $62
billion (TT)---a 425 per cent
increase in 14 years)
Mr Imbert was in the position
trying to do the sensible thing of
keeping spending going with no
real savings to fall back on. So he
is going to have to borrow money.
Where households and govern-
ments are similar is that we all
have to look at our expenditure
to ensure that we spend properly.
That is, we are getting the best
"bang for our buck," especially
when we are borrowing money to
do so. But as I have always said,
a society is judged by the man-
ner in which it treats it most
health, education, public safety,
and a safety net for our elderly
and our poor is not negotiable
that we demand greater efficien-
cy in their delivery.
So how does Mr Imbert s
budget stand up?
Let s look at income first---in
light of the shortfall in oil and
gas income the other main
sources of government income
are VAT income, company taxes
and personal income tax.
The minister has reduced VAT
from the 15 per cent, the rate at
which it was established, to 12.5
per cent. This was presumably
based on a rather rash campaign
pledge and is difficult to justify
from an economic point of view.
In fact, most countries in the
world are increasing their VAT.
Why? Because it is one of the
easiest taxes to collect and
because it is one of the fairer
taxes, especially since here in
T&T most food items do not
have VAT placed on them. While
it was positioned as a means to
help the poor, the ones who will
benefit the most are those who
spend the most. Those expensive
cars are going to be cheaper! No
economist in T&T thought this
was a good idea.
There was no change in com-
pany taxes that tally with coun-
tries with GDPs similar to ours.
The annual income at which
personal income tax became due
was raised from $60,000 (TT) to
$72,000 (TT). This will benefit
many people whose wages were
pushed over the old personal
allowance limit (given the two
increases in minimum wage over
the last five years).
Governments have a personal
allowance for three main rea-
sons---it does not deter those
who work for lower wages from
seeking work; it keeps all the
income of lower paid workers in
their own hands; and it greatly
reduces government paper work.
So this increase has benefited a
lot of people and reduced the
government workload. A good
idea. Over the next two weeks
and more conversations with
economists, I will look at govern-
ment expenditure and attempts
at increasing government effi-
ciency. But I need to say it again.
We are in the midst of a reces-
sion and while the Government
may need to spend, households
too need to get smarter on how
they spend---yes to investment in
our health, education, housing
and retirement planning, and
"no" to expensive, frivolous pur-
Soon after I first came here,
back in the early 1995, a
litre of unleaded gas was $2.57. A
beer cost $4. And what is now a
$5 taxi ride was just $2.
Since then, the Central Bank s
index of retail prices has soared
to more than three times its
1995 level. Which is pretty much
what has happened to beer, on
the Avenue at least.
Food prices---says the index---
have increased more than four-
teenfold in 20 years.
So I m not getting too excited
about the price of Super, which
(including the budget hike) has
moved from $2.57 to $3.11 over
the same time frame.
The fuel subsidy makes no
economic sense. It sends the
wrong price signals---we re
encouraged to tie up road space,
boost global warming and buy
And it s not the only subsidy
we give the nation s drivers.
Spend a few billion on a new
highway? Fine, not a problem---
drivers can use it for free.
There s no user charge.
That s in contrast to France,
which has long used tolls to
recoup the cost of its autoroutes.
As they do in Jamaica, and some
Drive into central London on a
weekday, and there s a daily con-
gestion charge. It s around $115.
Plus whatever you pay to park.
This country s transport sys-
tem is balanced on the edge of
chaos. We saw that last week---a
fallen tree or a bad smash-up
can create hours of tailback.
You can hit gridlock any
time---on a Sunday afternoon or
at 2 o clock in the morning.
Too many people get up at five
each day to reach work for eight.
That s not acceptable. It s a
gigantic waste of time and ener-
gy.We re worried about service
standards? If I had to start my
day like that, I too would be on
a short fuse by Friday.
For school students, a hefty
commute is no way to start a
Traffic congestion carries all
sorts of costs. Businesses pay for
vehicles and staff who spend
their working time uselessly
stuck in traffic.
This country has the right
geography for a rail system.
There s a linear settlement pat-
tern. An east-west line from
Diego along the corridor, plus a
north-south line through
Chaguanas and San Fernando
could serve a huge slice of the
So yes, it looks promising. But
there may be snags.
First of all---what type of rail?
There s a huge difference
between an urban tramway
chugging between closely-spaced
stops, and a full-scale high-
One of the pre-2010 French
consultants told me that his
team worked on two alterna-
tives---the high-spec system they
had been asked for, and a less
ambitious mid-speed network
they felt would be more cost-
Next---what type of cost recov-
ery? Road users pay only their
vehicle costs and (subsidised)
fuel. They get the track the car
runs on for free. Should that be
the same for rail passengers? Or
should they pay the full set-up
Either way, a rail system won t
come quick. And it won t come
cheap. Unless the good fairy
brings a new energy boom, we re
going to have to make choices.
And that s what the budget
speech doesn t do. It runs
through the whole highway
menu, including a costly cause-
way to Chaguaramas which
would perhaps parallel the pro-
posed rail track.
There s nothing totally off the
wall on that list---nothing like
Jack s proposed Northern Range
tunnel to Maracas. But it s hard
to see how, in the current finan-
cial climate, we can pay for all
of these, all at once. Even if we
borrow. Or indeed, especially if
Big transport schemes can run
away with themselves, with
unhappy consequences. And
that s not just Panday and Piar-
co---if you want to read about
trouble, just google "Edinburgh
Three good words in the new
Public Sector Investment Pro-
gramme are "National Trans-
portation Study." We need one of
those---and with luck, it will
come with open-minded consul-
tation and imaginative thinking.
And with an eye to new tech-
nology. Driverless cars could be
with us in just a few years. Now,
that s going to be fun to write
NO TO EXPENSIVE, FRIVOLOUS PURCHASES
GAS PRICE? I'M NOT PANICKED This country has the right
geography for a rail
system. There's a linear
settlement pattern. An
east-west line from Diego
along the corridor, plus a
north-south line through
Chaguanas and San
Fernando could serve a
huge slice of the
So yes, it looks promising.
But there may be snags.
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