Home' Trinidad and Tobago Guardian : May 25th 2017 Contents BGVIEW
Thursday, May 25, 2017 guardian.co.tt
Is cutting transfers mandatory?
The commentaries in this space last week and
the week before achieved their aim in start-
ing a national dialogue about the standard of
living in this country and the extent to which
government's income tax and expenditure pol-
icies impact on the quality of life enjoyed by
a majority of T&T residents.
Among the more interesting responses to those two com-
menaries was this one from a retired accountant: "...the low
marginal tax rate, the absence of graduated corporation and
personal tax rates, the VAT rate (until recently in a politically
motivated fudge) remained unchallenged. To add to the above,
and in no way to detract from your report, dividends from
private companies remained untaxed, the taxation of capital
gains is effectively non-existent and the, dare I whisper the
words, taxation of estates is not debated."
And this one from a former government minister: "Of course
it was well understood that government tax was largely depend-
ent on LNG. Manning understood that clearly. And expressly
set about making the state the most powerful agency in TT.
That's why he created a plethora of state companies and set
out on an expansionary construction programme...."
Also, this one from a columnist with another newspaper:
"These polices were reckless and unsustainable-a fact which
is being felt now. Subsides harm our economy and industry.
They are also really difficult to remove once implemented.
These polices did not as you say 'raise our living standard'
-they merely created an illusion of prosperity. An illusion
that is now crashing down."
In my view, it is very important that the current admin-
istration join in this dialogue because of the possibility,
or the likelihood, that the government may be required,
sometime down the road, to pick and choose those trans-
fers and subsidies it can afford to keep and those that it cannot
afford to maintain.
I think both Prime Minister Keith Rowley and Finance Min-
ister Colm Imbert understand that they may be required to
have a national dialogue on transfers and subsidies sooner
rather than later.
In responding to some questions from the Sunday Guardian,
Prime Minister Rowley said: "Unpleasant as it is, we are forced,
at this time, to cut our size to fit our cloth," which appears
to be a more serious and direct message than that given by
Mr Imbert in concluding his mid-year budget review: "As a
responsible government, in these challenging times, we must
cut our coat to suit our cloth."
But it is noteworthy that in the very same concluding para-
graph of the mid-year budget review, Mr Imbert said: "Barring
unforeseen circumstances, we are on course to achieve our
fiscal consilidation targets for 2017."
The first clause in that sentence is disturbing because one
is not quite sure what our minister of finance means when he
speaks about "barring unforeseen circumstances."
Given the fact that, in the first quarter of 2016, oil prices
went below US$30 a barrel and the Henry Hub price for nat-
ural gas went below US$1.50 per million BTUs, it ought not
to be an unforeseen circumstance if the price of T&T's main
oil, natural gas and gas-derived exports were to descend to
the lows of last year.
In fact, one might argue that prudence should dictate that
T&T should be basing its fiscal modeling on the assumption
that our export prices could test last year's lows. Or at least
the fiscal scenario planning should assume a sharp decline in
revenues from the offshore sector, which could cause a further
decline in economic activity onshore.
In other words, if the price of our onshore exports were to
experience a quite predictable decline from their current lev-
els---the West Text Intermediate and Henry Hub benchmarks
averaged US$51 and US$3.10 per mmbtu last month---it is hoped
that the Ministry of Finance would have a plan, based on a
tested scenario, for dealing with the decline in the country's
revenue and foreign exchange inflows.
Part of the scenario planning, one assumes, ought to be
interrogating the 2017, or 2018, budget estimates of expend-
iture with a view to determining which are the transfers and
subsidies that may be reduced or eliminated and which are
going to be pruned.
An exercise based on the 2017 Estimates of Expendi-
ture would reveal that the government's $56.57 billion
in expenditure was allocated as follows:
• Personnel expenditure............................$10.31 bn
• Goods and Services................................$5.71 bn
• Current transfers/subsidies.....................$22.92 bn
• Current transfers to state bodies...............$6.86 bn
• Debt servicing.......................................$8.17 bn
• Development programme........................$2.47 bn
Analysis of T&T's original estimates of expenditure indicate
that transfers and subsidies total $29.78 billion, or about 53
per cent of the $56.57 billion it was originally estimated that
T&T would spend during the current fiscal year, which ends
on September 30.
Earlier in his mid-year review presentation, Mr Imbert
said: "It is worth repeating that as a country, we have lost
$20 billion in annual revenue since 2014 and US$2.5 billion
in annual foreign exchange inflows...This is the reality we
now face--how to run an economy accustomed to $57 billion
in expenditure on $37 billion in tax revenue!"
If the current administration is serious about cutting the
government's size to fit its cloth, the extent of the transfers and
subsidies would dictate that that is the category of spending
that it should start.
It would seem to be an exercise in prudence for the gov-
ernment to begin communicating to the population that
the expectation that transfers and subsidies can continue
at close to $30 billion a year has become unrealistic. They
It is also unrealistic to expect that as a country T&T can get
back to a situation where the government collects $58 billion
in tax revenues.
Why are we continuing to operate as though this revenue
decline is temporary, when rationality dictates that it is not?
If we realised that we now have to work to earn our living---
and not just depend on rents from energy---we would do what's
necessary now and not wait until our reserves are down to
The longer we delay the pain, the more difficult it becomes
to adjust to it.
So the question becomes: What does the government need
to cut to reduce the allocation for transfers and subsidies by
$10 billion from $29.7 billion to $19.7 billion. Cutting $10 bil-
lion from transfers and subsidies would reduce the country's
total expenditure from $56 to $46 billion, which presents a
much easier target for financing if the government is going
to continue raising $37 billion in tax revenue.
The question of what transfers and subsidies to cut should
be premised on the assumption of doing least harm.
The first question that should be asked is whether T&T
needs the multitude of state companies that are duplicating
the work that should be done by ministries:
• Does T&T need Udecott, Nidco, EFCL and CNMG?
• What about EMBD, Namdevco, National Schools Dietary
Services and the Rural Development Company?
Can those companies with their boards of directors, CEOs
and budgets be scrapped and officers transferred to special
units in ministries?
And what about other state enterprises such as NP, TSTT,
NFM and Caribbean Airlines Ltd? Would it be possible for the
state to transfer those companies back to the private sector
by selling its shares in them?
WHAT TO CUT?
Customers at an NP service
Station in Port-of-Spain.
PHOTO: RISHI RAGOONATH
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