Business Page – October 7th, 2001


Trinidad and Tobago - Budget 2002

 

Introduction 

In a most bizarre irony, Budget 2002 in Trinidad & Tobago was presented by a UNC Government whose very future hangs in the balance at a time when the economy of the twin island state was at its strongest. The Budget was presented on Friday September 14, three days after the events in New York and Washington D.C, the impact of which continues to have aftershocks which are reshaping and realigning the world. Finance Minister, Mr. Gerald Yetming, must have already completed his Budget Speech prior to these earth-shattering events and in a subsequent report in that country’s Guardian newspaper he admitted that “the timing of the attacks made it virtually impossible to fully factor them into the Budget”. 

Showing a complete awareness of the implications of September 11 on his Budget, he said that the Government recognised that events in the global economy had the potential to dampen the country's short-term economic growth and has told his country’s Senate that the Government's projected outlook of five per cent expansion in 2001 and 2002, needs to be reassessed in the light of recent global developments. 

In Business Page today, with the kind permission of Ernst and Young Caribbean, we look at some of the highlights of that speech and consider the implications of September 11 on the Budget. The rate of exchange is approximately TT$6.25 to US$1. 

2002 Budget Measures 

Direct Taxes

·        The corporation tax rate will be reduced from 35% to 34%.

·        The personal income tax rate will be reduced by 1% at the various bands, resulting in the rates moving from 28% to 27% and 35% to 34%.

·        Personal Allowance for persons over 60 years increased from $30,000 to $36,000.

·        The 5% tax on interest derived from savings accounts will be removed.

·        Reduction in Environmental Levy from 0.1% to  0.075%. 

Indirect Taxes

·        Expansion of the list of zero-rated supplies (for VAT) to include other basic commodities.

·        The imposition of a penalty for the late filing of VAT returns of $100 per month.

·        Removal of stamp duty on Life Insurance Policies and Annuities.

·        Removal of the 6% Premium Tax on insurance policies purchased by persons over 60 years of age.

·        Imposition of stamp duty at 5% on share transfers executed off the floor of the Trinidad and Tobago Stock Exchange. This is clearly a move to encourage trading through the Stock Exchange.

·        A 15% increase in the excise duty on tobacco products, the import duty on tobacco products imported from Caricom and tobacco tax on extra-regional products.

·        A 15% increase in the excise duty on locally manufactured alcoholic products and the import duty on alcoholic products imported from Caricom.  Extra-regional imports will attract increased duties of 30%. 

·        Increase in taxes payable on gambling tables and other devices by 100%. 

Incentives

·        Increase in initial allowance for companies qualifying under the Income Tax (In Aid of Industry) Act from 50% to 60%.  In addition, the companies that qualify for accelerated capital allowances have been expanded to include all manufacturing companies.  In Guyana, the initial allowance on plant and machinery has for years been set at 40% and is only available to specified manufacturing activities set out in the Income Tax (In Aid of Industry) Act.

·        The Minister has proposed to allow accelerated deductions of capital expenditure on research and development over a period of five years.

·        In order to encourage higher levels of investments in the agricultural sector the government has proposed to amend the existing tax legislation to introduce:

1.           an initial allowance of 60% or 25% tax deduction with respect to new capital expenditure; and

2.           tax exemption in respect of interest on approved loans for approved agricultural projects. 

Sport Allowance

To encourage corporate involvement, a tax allowance of 150% of actual expenditure incurred up to a maximum of $300,000 for assistance to sportsmen and sporting activities has been proposed. 

Safety Net

·        Increase in the disability grant from $520 per month to $600 per month.

·        Maintenance and separation allowance and alimony payments will now be exempt in the hands of the recipient.

·        Increase in Old age pension from $620 to $700 and $720 to $800 respectively. 

The budget estimates that during 2000 – 2001 the economy showed growth of 4.2% which reflects a declining rate of growth when compared to 6.4% for the previous period.  Once again the petrochemical sector is leading with an expected growth rate of 5.2% (4.6% 2000) and a 23.9% contribution to GDP (24.1% 2000).  The non-oil sector while still representing the larger percentage of GDP, 76.1%, is expected to experience a declining rate of growth from 6.7% to 4.0% in 2001. 

Conclusion 

The achievement of the 2001 Budget targets must now be considered highly doubtful for both political and economic reasons.  Three senior members of the Panday Cabinet have either been fired or have resigned, and the question is now whether the Government will survive if these persons vote with the opposition in the National Assembly. Even if by some stroke of luck the Government does survive, the budget outlook must now be considered in grave doubt. As Business Page went to press Stabroek News reported that a deal had been struck between opposition leader Patrick Manning and the three dissidents from Prime Minister Basdeo Panday’s ruling party. 

Anticipating the economic difficulties, Mr. Yetming said that the overall adjusted outlook for T&T "seems slightly threatening," and consequently, the 2001-2002 "Budget fundamentals now appear to be in slight jeopardy". 

He hinted at deepening problems for an already beleaguered tourism sector, especially in light of the recent pullout of several major airlines from the tourism sector. But tourism, he said, is a small contributor to the economy. 

Somewhat optimistically, while predicting immense economic consequences from September 11, Mr. Yetming does not anticipate any significant change to the price of oil and noted two things in his country’s favour – contractual arrangements and the low-cost nature of its production.  Realistically however, he has already identified containing expenditure as one way to deal with the fallout and if necessary, limiting or suspending expenditure under the Exchequer and Audit Act.  

The Minister in his presentation also repeatedly pointed to the need for tax reform and improvement in the processes at the Trinidad Board of Inland Revenue. The similarities to the Guyana situation are apparent and while the establishment of the Guyana Revenue Authority is a step in the right direction, it should be considered as just the beginning. 

Guyana would also do well to emulate Trinidad in terms of the timeliness of its Budget preparation and presentation and to examine the incentives and policies which make Trinidad and Tobago a growing powerhouse in the Caribbean region. A Budget is of only limited value if it is presented after three months of the year to which it relates have already elapsed. 

Even though his Budget could not have anticipated the events of September 11, the Minister’s presentation recognized the need for incentives and other actions that would provide stimuli to the economy. That is refreshing when one considers that the Trinidad and Tobago economy was not facing a recession and had in fact experienced relatively solid growth. This attitude shows an awareness of the fact that resting on one’s laurels is not an option today, especially when events in this global economy have such far-reaching effects that can be devastating to the unprepared.