The TTWhistleblower continues a series of policy proposals which amount to an alternative budget for 2018 and beyond to forward a strategic direction for Trinidad and Tobago, for the good of all people of this country.
In Part 1, we explored the broad issues affecting Trinidad and Tobago and the course that must be set so that the right policies can drive growth, economic expansion, a better quality of life and sustainability. In Part 2 we looked at economic recovery, the Energy Sector, reform of the Public Service and expenditure audits and Public Sector Investment.
Today, in Part 3, we examine confidence, revenue, growth and investment, and fiscal measures.
Since taking office, a large part of the national conversation by the Keith Rowley Administration has been underlined by the cry of ‘hard times’, ‘difficult decisions’ and claims of being unable to pay bills.
As a nation, we have been talked into a corner of economic challenges which has not helped to encourage local and foreign investors to risk their capital in the development of projects or business expansion.
The conversation must change and a fair assessment must be made of the Government’s current financial position with a view to changing the Government’s approach to dealing with local and foreign investors.
The conversation must not be about the challenges we face and the hardship in difficult decisions; rather they must be based on the avenues that exist to proceed with investments and capital creation through a robust private sector and a stable Government.
These critical areas must be addressed if immediate signs of economic recovery are to be achieved, to pave the way for a return to sustainable growth, job creation and heightened economic activity.
Boosting revenue has so far in the past two years been approached by undertaking new taxes, price increases in fuel through the partial removal of the fuel subsidy and increases in the Value Added Tax (VAT) net.
No country in the world has ever been able to tax itself out of economic hardship and new avenues for revenue creation and generation need to be explored immediately.
One fundamental approach to boosting revenue can come from the improvement in payment and receipt processes used by the Government. As it stands now, the Government can take up to many months to pay the suppliers of goods and services, which in turn constricts the ability of service providers and contractors to pay their own bills.
The pass-on effect is that the settlement of debts across the economy ultimately results in the slow receipt of taxes and duties by the Government itself.
This simple fact, coupled with the need to fix the weaknesses in revenue collection can result in a substantial increase in the revenue that Government can collect within a fiscal year. Key to executing such a strategy will involve process improvements in the collections arms of the Government, making the payment of taxes, duties, surcharges and other dues easier, quicker and based on a strongly transparent electronic method.
An essential factor in generating revenue is the valuing of returns on investments made in the form of incentives, such as in the Tourism sector where incentives for the upgrade of room stocks have been in existence for at least three years.
Incentives must not simply be seen as an expense or investment by the Government; it must also be seen as a revenue generating mechanism and offering incentives that are geared to improving the performance of a sector will inevitably see an increase in the dues payable to the Government.
Another critical factor Government must immediately investigate is the impact on Government revenues by failures to meet project execution targets. If projects that are implemented cannot be completed within the timeframe of its budget framework, the pass-on effect is that the service providers are also delayed in their ability to pursue new projects, which in turn will see delays in the commencement of other, vital capital projects.
A loss of revenue for any corporate institution in Trinidad and Tobago means a loss of revenue to the Government. This approach speaks directly to value for money and return on investment approaches to capital expenditure.
One thing that a Government must not do is introduce new taxes at a time of economic downturn. The population bears the brunt of economic burdens and applying additional costs to their monthly expenses can have an almost immediate effect of triggering a recession.
Falling consumer spending impacts the small business sector first, and the employment status of large numbers of people. Growing unemployment will mean an even bigger nosedive in consumer spending and the spiral effect is what traps Government and restricts in revenue generating potential.
Critical to revenue generation is the full activation and implementation of existing bilateral and partial scope agreements with other countries.
The Prime Minister recently concluded a State visit to Chile, following which there was a buzz about the potential for trade and cooperation.
Since then, nothing has been said about advancing the potential for trade with Chile.
Apart from Chile, other bilateral and partial scope agreements are already in place, including:
· Trinidad and Tobago-Panama Partial Scope Trade Agreement;
· Trinidad and Tobago – Guatemala Partial Scope Trade Agreement;
· World Trade Organisation (WTO) – Agreement on Trade Facilitation;
· Trinidad and Tobago – El Salvador Partial Scope Trade Agreement;
· The Cariforum/EC Economic Partnership Agreement;
Out of these agreements, local businesses have the ability to tap in the huge new markets in the hundreds of millions for both finished goods and the provision of services.
Larger earnings and expansion by local business will ultimately redound to increased corporation tax, engagement of local resources, increased employment and increased spending and engagement of businesses within the particular sectors.
When agreements are made with foreign countries and lethargy in execution follows, the agreements become just documents that are stored and eventually forgotten.
As it is, agreements in place can create huge benefits for Manufacturing, Service, Distribution, Construction, Tourism and Trade and Industry, but a tremendous amount of effort must be placed in bringing investors together with a view to further agreements into trade relations.
GROWTH AND INVESTMENT
The target of achieving sustainable economic growth will not come by the application of taxes and introduction of new levels and forms of bureaucratic processes.
Growth must be pursued in the context of sectoral expansion, not simply additional purchase and property taxes.
Part of the Government’s role in economic activity must see investments, largely through carefully structured diversification incentives in:
· Boosting agricultural production;
· Modernizing the fight against crime;
· Facilitating a stronger and inclusive education system that sees the need for sound education as being more important than the cost of providing it;
· Stepping up its performance in the execution of PSIP projects and allocation utilization;
· Pushing forward with trade agreements by applying agreed terms to parties that must be brought together to advance trading relationships;
· Infrastructure improvements which impact Transport,
Distribution, Industry, Manufacturing, Services and our overall rank in the ease of doing business;
· Social Sector reforms by ensuring that persons accessing State grants and allowances are also assessed in terms of skills levels with a view to new and further training;
· New training programmes must be strongly linked to broad strategy for economic diversification – if we are to introduce new pillars of the economy, we must ensure that the men and women who will staff new industries are home-grown and home-trained;
· Legislative reforms must ensure that the Government strengthens its hand as regulator, and reduces its role as a competitor in the economy. A Government that is heavily involved in economic activity can have a disastrous effect in times of economic downturn, as we are now seeing. An economy that is private sector driven has a much better change of weathering even severe storms, and
· Immediate steps to avoiding a looming Pensions crisis.
FISCAL POLICY MEASURES
After two budgets, going into a third budget, by the Keith Rowley/PNM Administration, Trinidad and Tobago now has under its belt dismal GDP fluctuations:
· At September 2015 was -1.6%;
· At December 2015 was -1.4%;
· At March 2016 was -5.3%, and
· By June 2016, a historic decline of -8.2%.
The response by the Government was to cut, slash, remove and terminate spending at all levels, but without any consideration for the fact that some cost cutting measures could create immediate and medium term costs that will ultimately have to be met by a future Government.
The Prime Minister is on record as saying: “Between 2014 and 2016 Government subsidized water to the tune of $6 billion (“as bad as the service is”); petroleum subsidy in the same period was $13 billion;
The UWI – $2 billion, UTT-$1.2 billion between 2014 and 2016;
GATE-$1.98 billion; the public service wage bill – $20.7 billion; social programmes such as URP and CEPEP in 2014 to 2016 cost the Treasury $12 billion.”
It was almost like a preface to saying – all of these things will be cut, immediately!
But using economic challenges as an excuse to entangle the population in an ad-hoc mix of unrelated policy measures, each pulling in a different direction is to damage the economy and population even more.
At the Central Bank, its March 2017 Economic Bulletin summarized the economic environment saying: “In Trinidad and Tobago, production indicators of real economic activity monitored by the Central Bank suggest weaker performances in both the energy and non-energy sectors in the latter half of 2016.”
The Economic Bulletin also stated: “Available data suggest that non-energy output may not have been strong in the third quarter of 2016.
Construction activity appears to have been subdued as indicated by large declines in local sales of cement and retail sales of hardware and construction materials. The decline in the Index of Retail sales for the third quarter of 2016 also points to marked contractions in distribution activity.”
The non-energy sector comprises Services, which includes Financial Services and Real Estate; Tourism; Manufacturing; Transport;
Distribution; Creative; Agriculture and Maritime. These sectors have been the stomping ground for economic diversification talk and initiatives, and declines in these sectors in the face of a consistently declining energy sector, in an environment where the Government has not fully articulated an economic recovery and expansion strategy means trouble for the Trinidad and Tobago economy.
According to the Central Bank’s March 2017 Economic Bulletin, economic activity in some non-energy sub-sectors, such as Distribution, Construction and Manufacturing, contracted in the third quarter of 2016.
Construction showed a significant decline when compared with the same period one year ago and theEconomic Bulletin attributed this to a fall-off in Government spending under the Public Sector Investment Programme.
Economic activity in the Distribution sector contracted by 8.2% (year-on-year) caused largely by a fall in the retail sales of motor vehicles (27.3%) and the retail sales of construction materials and hardware (30.4%).
Manufacturing declined by 4.3%, and production in the chemicals and non-metallic minerals sub-sector declined by 12.9%.
The Finance, Insurance and Real Estate sub-sector rose only marginally by 0.8 per cent because of an increase in commercial banking activity (deposits, loans and investment).
Economic activity in the Agriculture sector increased negligibly by 0.4 %.
The 2016 Review of the Economy stated: “Net Public Sector Debt Stock is anticipated to increase by 16.2 percent from $76,541.3 million in fiscal 2015 to $88,964.2 million by the end of the current fiscal year, based primarily on a US$1 billion bond raised in July 2016.”
In December of 2016, the Government floated another TT$500 million, six-year bond.
This means that as activity in the major non-energy sub-sectors declines, or remains stagnant, the Government is borrowing and pushing the public debt higher, weakening the nation’s credit rating position by global agency standards.
And this is a mis-match of policy; these measures and spending cuts have hurt the sectors that we are relying on for economic diversification, while you’re borrowing has tarnished our credit rating and our ability to borrow on the international capital markets at competitive rates. This is even more detrimental since borrowing is being used for recurrent spending, rather than capital creation.
How then will diversification proceed if we are unable, as a nation, to borrow at competitive rates to lay the foundation for new sectors to develop and existing sectors to grow?