SPARE US ANOTHER WISH LIST, PLEASE

By the time this article is printed, the much anticipated National Budget for the fiscal year 2005/06 will have been presented to the P rliament of Trinidad and Tobago by the Honourable Prime Minister and Minister of Finance.

Unfortunately, given the timing of its delivery, it is not possible in this article to discuss the contents of the new fiscal package. This, however, does not preclude us from focusing on some of the key highlights of the last fiscal year and posing a few pertinent questions relative to fiscal year 05/06.

In reviewing the 2004/2005 fiscal policies, we shift our focus from merely assessing changes in the income and consumption tax structures. The reading of the national budget and the subsequent debates provide a unique opportunity for the people of Trinidad and Tobago to assess, firstly, the appropriateness of the prescribed fiscal policies for the upcoming year.

This, in the context of existing national goals, and, secondly, to conduct an analysis of previously stated fiscal policies and objectives to ascertain whether as a nation we are indeed achieving our stated goals.

Finally, it is an opportunity to determine the achievability of the current objectives in the context of past performance. The success of the proposed fiscal policies is dependent on the Government identifying and closing performance gaps experienced in the implementation of previous policies and devising appropriate strategies to overcome weaknesses during the implementation phase.

POLICY DIRECTION

Last year’s budget was based on the much touted macroeconomic policy of economic transformation. This was disaggregated into an industrial policy that firstly, was centred on the diversification of the economy and secondly, on maximising returns from the energy sector through the dual approach of increasing the Government’s tax take and participation in the value chain of the oil and gas sector. The achievement of greater social equity through the attainment of full employment by the creation of permanent jobs and a high quality of health, education and general welfare rounded off the overall direction of policy.

The policy of economic diversification was focused on six key sectors of the economy:

• The traditional manufacturing sector

• A new technologically based industrial sector

• Tourism

• Financial services

• Agriculture

• The small business

sector

PRESSING QUESTIONS

For this year’s Budget the pertinent questions in this regard will be:

• What successes have been achieved over the past year relating to the policy of economic diversification and what policies should be continued in 05/06 to pursue this goal?

• To what extent are these successes sustainable? Or, are we saddled with economic diversification successes that are heavily dependent on Government support in order to survive?

• Is the current tax regime in the energy sector equitable? While some progress has been announced in this regard in terms of the oil sub-sector, there have been no further updates on the tax regime for the gas-sub sector. This is significant given that the energy sector is becoming increasingly gas based and, therefore, it is natural gas production which is becoming the new commanding heights of the economy.

• What headway have we made as a nation relative to the improvement in health, education and other general welfare issues?

Answers to these questions ought to provide taxpayers with an indication of the successes of previously enunciated fiscal policies.

RUNAWAY

PRICE INCREASES

It is noteworthy that the expression of any policy direction or statement without well-defined strategies or action plans within an established time-frame is merely a wish list and conveys little confidence in its achievability.

In the 2004/05 budget presentation, the Minister of Finance provided a number of targets to be achieved along the way to economic transformation and social equity.

Given space limitations, we will review just a few random selected issues:

•INFLATION:

The Government’s target rate for inflation was declared to be 4%. The actual rate of inflation as reported by the Central Bank as at August 2005 (year-on-year) was 7.3%. This higher rate of inflation places increased cost escalation pressures on our citizens, particularly those who depend on fixed incomes such as pensioners and other dependants of the state in receipt of social assistance. This rate of inflation is one of the factors that has influenced the Central Bank to increase the repo rate leading to an increase in local interest rates. This is a fundamental issue which has to be addressed. The pertinent question in this regard is, what are the short and medium term fiscal measures which will be implemented to alleviate these higher than expected price increases?

• INTER-GENERATIONAL SAVINGS

What are the current levels of savings in the Interim Revenue Stabilisation Fund and/or Heritage Fund? The continued depletion of the non-renewable energy resources as well as the volatility of current market prices are compelling arguments for the setting aside of these fiscal savings in FY 05/06.

• INFRASTRUCTURE

What is the status of the National Transportation Study? Does it support the establishment of a light Rail Mass Transit System and what strategies will be implemented in FY 05/06 in this regard?

These are just a few of the questions we will adress during this Budget Week 2005/06.