2018 Budget: An inflationary Fiscal Stew

The 2018 national budget, as presented by Minister of Finance Colm Imbert on Monday October 2, 2017, is “an inflationary fiscal stew”. A simple in-depth analysis of the prescribed tax measures, by anyone who has the most basic of understanding of how taxation works through the economy, impacting prices and increasing costs of living, would conclude that the budget is very inflationary. And that the general population would have to pay more for same amounts of food and services they bought in 2017.

The following are the direct inflationary tax measures in the 2018 fiscal stew, some of which have already increased costs of living and of doing business:-

Super gasoline hiked from $3.58 to $3.97 per litre.

Diesel hiked from $2.30 to $3.41 per litre.

Vehicle inspection fee hiked from $168 to $300.

30 percent import duty harmonised on all tyres (new and used).

$20 environmental tax on every tyre imported into the country.

25 percent motor tax and duty on cars exceeding 1599cc engines.

Corporation tax increased from 25 percent to 30 percent.

A 35 percent new tax bracket for commercial banks.

Increases in the annual licensing fees of private hospital from $150 to $100,000 maximum based on the number of beds.

A 12.5 percent royalty rate across the board on the extraction of all gas, oil and condensate.

Huge tax increases on the gambling and gaming industry.

10 percent tax on cash winnings on lotto and play whe.

Fiscal policy 101 teaches that all of the above measures announced in the 2018 budget are inflationary in their impact on the economy. Let me share the direct impact the increase in the price of diesel has had on me and other users already. As the owner of a Toyota Hilux diesel, I would use an average of 120 litres per month at cost of $276 at the old price of $2.30 per litre. Now with the increase in the price of diesel to $3.41 per litre, it is now costing me $409.20 for the same (120 litres) per month, an increase of $133.20 or 48.2 percent, and which adds up to $1, 598.40 per year.

This is the direct inflationary impact the increase in the prices of diesel and super gasoline are having on the already financial struggling population. The fact that diesel is the industrial/commercial fuel, the increase in its price would certainly release severe inflationary pressures on general prices throughout the entire economy, as the transportation component of the costs structure of doing business increases by 48.2 percent.

The reality is, it would now cost wholesalers, retailers, farmers and manufacturer 48.2 percent more in transportation cost to get their products/produce/items to market and on the shelves. In order to maintain their margin/profit, the increase costs of transportation would naturally be passed on to us (consumers) in the form of higher prices. This would have a triple-edged sword impact on households in Tobago, as 85 percent- 90 percent of what we consume are imported from Trinidad, resulting in the increases in transportation costs, in Trinidad and in Tobago, being passed on to Tobagonians, the final consumers.

Any which way we look at this, it becomes an even more inescapable reality, when the fact that the prices of tyres and the inspection fees of vehicles were also hiked by the Minister of Finance in the 2018 budget are included in the inflationary stew. Add also the datum that corporation tax has been levelled at 30 percent for all businesses operating in the country. This is a tax on the gross profits/margin of businesses. When these are mixed into the stew and seasoned with the new tax bracket of 35 percent on the profits of commercial banks, we have a fiscally impoverishing (making people poor) concoction.

The budget is certain in its intention to be inflationary and pauperising. Because in our financialised economy, banks operate on an owner/shareholder maximisation model (to make maximum profits for shareholders). And we know, too well, that the greedy and uncaring banks in this country would not charge this new 35 percent tax on their existing profit levels. Therefore, the most obvious reaction from the banks would be to increase the costs of borrowing to protect their self-centred corporate aim of maintaining existing level of profits and obscene returns to shareholders. And sadly, the population is not sufficiently organised and empowered to protest and boycott commercial banks should they seek to increase the costs of borrowing because of the newly imposed tax of 35 percent on them.

Returning to the direct and immediate impact on food prices, the country’s fishermen have publicly indicated that because of the immediate increase in the prices of diesel and super gasoline, the fuels they use to go fishing, the price fish would have to increase. Fish is one of the healthier sources of protein in our diet, which means that the poor people may no longer be able to afford fish. Covered with the impending increase in rates for electricity and water, the inflationary stew becomes very explosive. And when it bursts, it will rip the health and financial wellbeing of the working poor and the 300,000 poor, living on a meagre $985 or less per month, @Poverty is Hell.tt, apart.