“It is time to embrace fiscal responsibility and wipe out corruption,” a sombre-looking Dookeran told MPs at the Parliament Chamber in the Red House. As former Prime Minister Patrick Manning looked on, the Finance Minister alluded to the previous administration.
“Corruption, mismanagement and arrogance became the order of the day. It will take time to untangle that mess and bring those responsible to justice. But justice will be served,” he said.
Dookeran announced a plan to pay out millions to depositors and policyholders at CL Financial subsidiaries Colonial Life Insurance Company (Clico), and British American at an initial cost of $3.3 billion. He also pledged to pay depositors at the bankrupt HCU at a cost of $300 million.
Dookeran further announced that the billion-dollar trust assets of the Unit Trust Corporation (UTC) will be ring-fenced to protect 500,000 unit holders and that the UTC will now be placed under the scrutiny of the Central Bank.
In relation to the State bail-out of the CL Financial companies, Dookeran said, “More than eighteen months after the previous Government invoked Section 44D of the Central Bank Act, the People’s Partnership Government must now clean-up this mess.”
The insurance business of Clico and British American will be merged and depositors in short term investments and mutual funds will be paid an initial payment of $75,000. This is expected to pay off 40 percent of the 25,000 investors in these products.
Persons with balances over $75,000, however, will be paid through a Government IOU amortised over 20 years at zero interest. The IOUs will be tradeable on the secondary markets. Dookeran said the State would separate the insurance business of the CL companies from their investment and mutual funds business in order to protect insurance policy holders. He also pledged that the obligations of 225,000 policyholders will be honoured through the statutory fund.
In relation to the HCU, Dookeran said depositors and shareholders will similarly be entitled to $75,000 under the rules of the Deposit Insurance Corporation. Depositors above $75,000 will be paid in equal annual installments at a zero interest rate. Shareholders are to sign over the rights to the Government which will sell off HCU’s assets to recoup its $300 million bail-out. The measure, Dookeran said, will benefit more than 160,000 people.
Dookeran said the total funding by the State in relation to CL Financial, excluding indemnities and guarantees to First Citizens Bank, amounted to $7.3 billion as at May 2010. As at June 2010, Clico and British American’s combined total liabilities were $23.8 billion, but total assets were $16.6 billion.
“This fiasco was caused by reckless corporate governance and the glaring failure of our financial regulatory institutions,” he said. “The failure of both the regulators and the financial regulations resulted in insufficient oversight and investigation.” He said the Government will move to tighten State regulations of financial institutions.
“To ensure that this does not happen again, we shall strengthen the legislative and regulatory framework governing financial institutions and their holding companies. We shall strengthen the enforcement of regulations through stricter oversight and compliance with the relevant legislation, including the Insurance Act,” he said. The Central Bank Act, he said, will also be amended to provide the legal framework “to implement an economic solution and to subject our financial institutions to a higher level of control than currently exists.”
In relation to the ring fencing of trust assets of the UTC, Dookeran said, “this measure will further enhance the corporation’s governance framework...Segregated reporting for the collective investment schemes will be achieved via the legal separation of the trustee from the investment management and other lines of business like merchant banking.”
Dookeran added, “a legislative framework will introduce changes in the Central Bank’s powers to take decisive actions to protect Clico’s assets and ensure the safe and sound continuation of its legitimate insurance business.” He said, tellingly, “Our nation cannot allow a mistake of this magnitude to go without severe consequences. Those responsible for this crisis must be held accountable.”
Additionally, the Finance Minister announced plans to open several controversial special purpose state enterprises, like Udecott, to public ownership.
“A programme of public offerings will ensure that our people will participate in the fruits of growth and development,” he said. “It will further reduce the financial burden on the treasury.”
A re-alignment of scattered special purpose companies is also in the works.
“We have begun to rationalise the State enterprises...(to) incorporate a new accountability system that goes beyond the presently operating company ordinances. It is these loopholes in public accountability that resulted in the Udecott scandal. This must never again happen in Trinidad and Tobago,” he said.
The State will also aim to literally clean-up the nation, with a doubling of penalties for littering offences. For example, a person who litters in a public place will, from October 1, 2010, be fined $2,000 instead of the current $1,000. A corporation which litters gets slapped with a $4,000 fine. Failure to comply with a clean-up order will cost a corporation an initial $2,000 and $400 per day thereafter. Derelict vehicles left in public places will attract identical fines for those responsible.
Special measures to improve the use of solar energy equipment were also introduced, as the Finance Minister said the $2 billion-dollar fuel subsidy was under review.
Motor vehicle tax will also be reduced to zero for a period of five years on imports of factory outfitted “clean” CNG motor vehicles no older than two years. There will also be no VAT on the import of such vehicles, in addition to the removal of customs duty on CNG conversion kits and the CNG conversion cylinders required to convert a vehicle from gasoline to CNG.
Dookeran spoke for two hours and twenty minutes as he presented a wide-ranging $49 billion Budget which is expected to be funded by $41.3 billion in revenues and therefore result in a $7.7 billion deficit. The Budget is based on an oil price of US$65 per barrel, a gas price of US$2.75 per mmbtu, an inflation rate of seven percent and an estimated real GDP rate of two percent. Dookeran said 30 percent of the $7.7 billion deficit will be funded by money raised on the local market with deficit financing from regional financial bodies.
“Billions were spent yet the common man’s needs were neglected,” Dookeran said as he outlined a wide-range of initiatives to bolster trade and deal with different sectors of the economy. “From an obsession with two million dollar flags and private jets to police on the streets...hospital beds, computers for our children and so much more. Our spending priorities must change.”
He said the Alutrint smelter project would be stopped, and the $22.5 billion rapid rail project replaced with an alternative transport scheme. Of property tax, he said, “we will axe the tax” and revert to land and building taxes. However he was silent on promised lower rates of such taxes as promised on Sunday by Prime Minister Kamla Persad-Bissessar.
In relation to housing, Dookeran announced the consolidation of the Trinidad and Tobago Mortgage Finance Company (TTMF) and the Home Mortgage Bank (HMB) in order to tidy the confused functions of the myriad of home financing companies under the State’s management.
“We will clarify and confirm the mandates of these institutions and create a new holding company,” he said. The TTMF and HMB will initially be subsidiaries of this company, to be called the Trinidad and Tobago Mortgage Bank, with the HMB acting as the funding source.
However the new company will buy out the shareholders of the subsidiaries and then offer an initial public offering on the Trinidad and Tobago Stock Exchange.
First-time home owners will gain a $18,000 tax allowance per household on mortgage interest paid in the year of income for five years from date of acquisition, effective January 1, 2011.
Dookeran said contractors were owed approximately $4 billion, a figure lower than the $5 billion to $7 billion estimate calculated by officials of the local construction industry. He pledged to deal with the debt, but gave no fixed time-table to do so. The Finance Minister also said the Government would deal with approximately $2.8 billion worth of VAT refunds owed currently to businesses.Manufacturing businesses will gain from an increase in the wear and tear allowance from ten percent to 25 percent (except for buildings), to assist in the quicker write-off of assets. The regulations for customs entry will also be relaxed, with only goods valued over $20,000 now requiring customs entry (as opposed to goods over $1,000). There will also be tax allowances for persons and businesses who contribute to the Children’s Life Fund, a fund for terminally ill minors.
The State will also slash Petroleum Profits Tax from 50 percent to 35 percent in respect of deep water blocks. Additionally, a reduction of 20 percent on supplemental petroleum tax rates and an investment tax credit of 20 percent on capital expenditure will also be granted amidst other measures to stimulate the petrochemical sector.
There will be additional funding for the fashion and music industries, as well as a partnership with the Artists Coalition of Trinidad and Tobago on a planned National Heroes Policy aimed at promoting the legacy of local artists. There will also be a review of the Trinidad and Tobago Film Company and the Trinidad and Tobago Entertainment Company.
Of several measures outlined to deal with National Security, Dookeran announced a plan to pay a tax free special duty allowance to 7,000 police officers from October 1, 2010. Cops are now expected to up their visibility by increasing bicycle patrols.
Dookeran said the GATE, Conditional Cash Transfer Programme; School Feeding Programme; CDAP and URP will be untouched. A Milk Feeding Programme will now compliment the School Feeding Programme. An elderly mobile shuttle service introduced, in addition to legislation to deal with homes for older persons. A tax amnesty for income-tax filings takes effect immediately and will last until May 31, 2011.
The Finance Minister also announced a revamp of the Scarborough International Airport, amidst a cluster of measures revealed for Tobago last week by the Prime Minister. Tobago received an allocation of $2.6 billion, or 5.24 percent of total expenditure.
This, Dookeran said, was notably higher than the four percent allocation as required by law. Debate on the Budget, which is formally called the Appropriation (Financial Year 2011) Bill, will kick-start next Tuesday with the response of Opposition Leader Dr Keith Rowley.