Introducing revenue-generating measures and increasing the role of the private sector are core themes of Trinidad and Tobago’s recently released 2017 budget.
At the end of September Colm Imbert, minister of finance, announced a TT$53.5bn ($8bn) budget for FY 2017 in a bid to keep the current deficit at bay, with government revenue falling by 35% since 2014 to an estimated TT$37bn ($5.5bn) this year.
That deficit is expected to reach TT$6bn ($896m) next year – equivalent to 3.9% of GDP – bridging the gap between projected expenditure of TT$53.5bn ($8bn) and revenue from all sources of TT$47.4bn ($7bn), according to the budget statement.
The total projected expenditure for 2017 is marginally up on the estimated figure for this year by TT$1.2bn ($180m), while the projected deficit is TT$1.3bn ($194m) down on this year’s level.
The budget statement posits that oil prices will remain at $48 per barrel, lower than the IMF’s forecast of $50 per barrel next year, and sets higher taxes and fees in an attempt to narrow the budget deficit.
Aiming at earnings
Among the revenue-generating measures announced in the budget are a tightening of tax regulations and an expansion of the income base by cutting fuel subsidies, increasing levies on alcohol and tobacco sales, enforcing stricter oversight of the gambling industry and introducing taxes on online sales.
The budget also sets a new bracket of 30% for those individuals or firms that earn more than TT$1m ($149,500) annually, with the new levy set to generate some TT$560m ($83.7m) in state revenue per year. Previously, from 2006 through to 2016, all individuals and corporations regardless of income were taxed at a rate of 25%.
In addition to fuel subsidy cuts and the 30% tax on annual income, another highlight of the budget statement is the establishment of an independent statistical institute, the National Institute of T&T, which once established, will provide up-to-date statistical data, according to Marla Dukharan, group economist for Caribbean operations at Royal Bank of Canada.
Imbert also announced that the state would divest of a number of assets, including holdings in T&T NGL, financial firm First Citizens Holdings and some industrial estates, all of which are expected to generate TT$4.1bn ($612m).
The proposed divestment is a positive step, according to Robert Trestrail, president of the T&T Chamber of Industry and Commerce.
“With regard to state entities earmarked for divestment, we recommend strongly that the government move expeditiously to complete this,” he said at a post-budget analysis meeting in October. “This is critical in light of the fact that the divestment forms part of the plan to decrease the anticipated budgetary deficit.”
Involving the private sector
These revenue-generating measures in the budget dovetail with a shift towards promoting further private sector collaboration in government projects.
The budget sets out the government’s intention to raise the profile of the private sector in infrastructure and development projects, using public-private partnerships (PPPs) as the main vehicle over the next four years.
To this end, the government will “provide 50% tax relief and other appropriate fiscal incentives to businesses, which can mobilise private sector funding to provide public infrastructure and/or public facilities, amenities and services, now provided solely by the government,” the budget statement says.
The government will also consider extending these benefits to projects that increase productivity and create employment, with full details of the scheme to be released shortly, allowing for it to come into force in the first half of next year.
Slowing economic environment
The 2017 budget comes in response to warnings that T&T’s economy, which is in recession, is continuing to slow.
In mid-September the Central Bank of T&T (CBTT) said the economy continued to face challenges, with revenue and output from the energy sector down, as well as contractions in non-energy sectors.
While headline inflation remained modest in the first six months of the year, increasing from 2.4% in January to 3.4% in June, it is expected to climb in the second half of 2016, as the effects of depreciation of the local currency push up import costs, the CBTT reported in its economic bulletin published in March.
“The overvaluation of T&T’s dollar is in effect the central bank subsidising imports and making our exports more expensive, which has led to import-dependent consumption and spending patterns,” Dukharan said at the post-budget analysis meeting.
Unemployment rates are also predicted to rise from 3.4% in 2015 to 4.1% in 2016 on the back of slowdowns in the rollout of some government infrastructure projects and slower economic growth.
According to the latest government estimates, GDP is expected to contract by around 2.3% this year, sharper than the 0.6% declines experienced in both 2014 and 2015.
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