The 2003 Trinidad & Tobago Budget
Less than two weeks after receiving the clear mandate of the
electorate of his country following a debilitating deadlock at the elections
one year earlier, Prime Minister and Minister of Finance of the twin island
Republic, presented a TT$20Billion Budget with the theme “Vision 2020:
People, Our Priority”. According to a review by Ernst & Young, the
budget delivered several measures aimed at providing adequate support
systems for the youth, senior citizens and the less fortunate in the T&T
society. In addition, the Government’s medium term strategy is hinged on
the development of that country’s human capital, and outlines elements of
a major reform of its health and education systems. It also addresses the
question of crime generally and kidnapping specifically.
The budget was presented against a backdrop pf real growth
in the economy of 2.7%, a stable exchange rate and a fall in inflation from
5.6% in 2001 to 3.9% in the current year. Mr. Manning notes that with
prudent management of the economy over the last nine months, his
administration was able to convert a deficit of $1.671 billion into a
surplus of $68.9 million at the end of September, 2002.
It is a bold budget premised on the
all-important estimate of oil price of US$22 per barrel. The budget
estimates revenue collection of TT$19.55 billion and expenditure of
TT$20.1billion, leaving a deficit of $600. For this reason the budget has
not been without its critics including some in the private sector who
considered it somewhat generous. While the budget is indeed generous, it is
almost certainly what the people of that country needed after a long period
of political stalemate. Given that country’s resources the generosity can
certainly be justified certainly in the first year of the new
administration. Prime Minister Manning must be aware that he has time on his
side and when his administration moves towards its middle years he can then
make the kind of tough adjustments that the then conditions may demand.
the other hand, Ernst & Young Caribbean has questioned the abolition of
the export allowance with effect from January,
2003 which had been promised in the last budget of the Panday Government
administration. E&Y attributes this decision to
international pressures from the World Trade Organisation, but notes that
the removal of the allowance will certainly impact on those companies that
manufacture for export. According to E&Y, with the removal of the
allowance, manufacturers in T&T will find it extremely challenging to be
competitive in global markets where other measures of protectionism exist.
“At a time when the Government needs to promote exports and create an
environment in which our manufacturers and other export service providers
are encouraged to expand their businesses, the removal of this allowance
could significantly impact on the cash available for the investment needed
for this type of expansion” E&Y notes that T&T is still in
preliminary negotiations regarding the FTAA and wonders whether the complete
removal of this allowance is not premature and whether consideration should
not be given to a phased removal of the allowance.
is interesting to note that the export allowance in Trinidad & Tobago as
well as Barbados is often referred to by Guyanese businesspersons when
discussing some of the advantages which their counterparts enjoy. Guyana has
had such an allowance since 1988 and is not required to remove it at this
stage in view of the low level of per capita GDP. It is a little strange
however that Barbados does not consider itself bound to remove this
allowance and the concerns of E&Y are therefore quite justified. E&Y
considers that the adverse impact of this
reduction would be somewhat softened by the reduction in the corporation tax
rate of corporation tax is being reduced from 35% to a rate of 30% with
effect from January 1, 2003. This reduction will not however apply to
companies engaged in the petrochemical and related sectors. E&Y believes
that this reduction will encourage greater investment and lower the cost of
operating a business in Trinidad & Tobago, thereby encouraging foreign
investors into the country. Additionally, in light of the Free Trade
Agreement of the America’s (FTAA) it will make us more competitive in this
comparison, the rates of corporation tax paid by companies in Guyana are 45%
for commercial companies (defined to include commercial banks ad
telecommunication companies) and 35% for other companies.
Income Tax Rates
Minister has proposed to reduce the Income Tax rate from 28% to 25% on the
first $50,000 and from 35% to 30% on every dollar thereafter. It should be
noted that individuals including self-employed persons are entitled to
various allowances so that the effective rate is considerably less. This
measure which E&Y estimates will represent a considerable loss of
revenue to the government has been widely welcomed particularly as it had
been in the pipeline for some years.
addition to the $18,000 mortgage interest relief currently granted to home
owners, a further deduction of $10,000 per residence for a period of 5 years
is proposed and is to be granted to first time home owners who purchase
their homes on or after January 1, 2003.
Ernst & Young has pointed if the measure is enacted as expressed, it
will contain some measure of inequity since people constructing their own
homes will appear not to benefit from this measure. Apart from the
purchasers, construction companies will be major beneficiaries of this
a bid to encourage further savings, individuals will be able to claim a
deduction of up to $10,000 in respect of incremental shareholdings in a
society registered under the Co-operative Society Act.
interest relief was abolished by the Hoyte Administration in 1991 while
credit union dues have not as far as I am aware been allowed as a deduction
for tax purposes.
addition to housing covered elsewhere in this column, education and health
have received considerable attention in the budget. In education, the Prime
Minister has recognised this as a critical element in the long term strategy
of attaining first world status by 2020 and has announced the rehabilitation
of Secondary schools and modernisation of Secondary school curriculum within
the commitment to provide affordable tertiary education for all
qualifying candidates. A University of Trinidad & Tobago will be
established with an initial concentration on Science and Technology, whilst
maintaining a commitment to the advancement of the University of the West
health the Prime minister has announced the need for an efficient system to
deliver not only the more traditional services but the introduction of
additional facilities and equipment to cater for the growin incidence of
illnesses such as cancer, heart disease and HIV/AIDS.
the proposed abolition of the export allowance, the Manning administration
has identified the manufacturing sector as a principal generator of growth
in the economy and has identified a number of initiatives to achieve this
objective. These include Investment promotion; Export Development;
Development of external transport links; Entrepreneurial Training and a
Credit Union Development Bank.
effects of September 11 and the absence of strategic vision have been blamed
for the poor performance in this sector. To redress this adverse trend the
budget proposes the injection of the injection of $305million into a Tourism
Development Plan to promote sustainable development over the next three
Minister noted the need to enhance the regulatory and supervisory framework
to internationally accepted standards to achieve the vision of a major
financial centre of the Caribbean and the Western Hemisphere. As a result in
the next fiscal year the Government commits to the introduction of
legislation to integrate the supervision of insurance companies and pension
funds into the banking system under the authority of the Central Bank.
& Tobago is clearly serious about its goal to become the Singapore of
the Caribbean. Its maturity in resolving its political crisis of the past
year augurs well for that country and this budget can help the healing
process so necessary after fears that the country was going “Guyana’s
way.” Our politicians on all sides need to study the experience of our
neighbour with which we have so much in common.
the government level, we need a clear vision as well as the capacity to
execute. Presentation of the national budget before the beginning of the
year will be a good start but better execution is almost equally important.
The opposition needs to raise the level of debate in the country not only
criticizing but offering meaningful recommendations both to the government
and the people. All the evidence is that neither side offers much hope.
this column we have drawn extensively on the Ernst & Young publication,
Focus on Trinidad & Tobago Budget 2003 which is available on their