IT TOOK covid19 to force Government to take some risks and make some much-needed structural amendments to the national budget. The global pandemic, which brought with it collapsing commodity prices, supply and demand chain constraints and a global lockdown with restrictions on movement, meant that policies languishing on the periphery of implementation – notably digitisation and food security – were suddenly thrust to the forefront of a budget aimed at recovery, sustainability and innovation.
While still maintaining a robust social support system, Finance Minister Colm Imbert announced major policy adjustments, including completely removing the fuel subsidy, privatising the Port of Port of Spain, selling NP gas stations, freezing public sector hiring, contemplating raising the retirement age and hinting at utility rate hikes.
The theme this year was resetting the economy for growth and innovation. Clocking in at just about three hours, Imbert’s sixth budget as finance minister was fairly balanced, with a blend of bounties in keeping with Government’s election manifesto – $500 million in incentives for agriculture, other lucrative incentives for investment in technology and construction, 25,000 new houses for lower- and middle-income individuals over the next ten years, digitisation of the economy.
And the blows were hardly unexpected – announcements of property tax collection starting next year and a complete removal of the fuel subsidy from January – since in the run-up everyone from the Prime Minister to analysts attempted to prepare the population for the worst. There were also windfalls, like an increase in the personal income tax exemption from $72,000 to $84,000 annually (or $7,000 and less per month).
He acknowledged covid19’s disruption of the economy, noting that based on available data, had everything remained on track, the economy would have returned to sustainable growth in 2021.
COVID19 SHAPES BUDGET
“Prior to the advent of covid19, we were on the cusp of our economic recovery. The economy had been stabilised as macroeconomic and structural reforms had begun to take root,” he said. The post covid19 economy, he said, will be shaped by decisions made in the fight against the virus, its uncertainty and trajectory.
Revenue and expenditure estimates were complicated by “technical difficulties brought about by covid19,” he said, and the impact on commodity prices. Using international analyses, the budget will be predicated on an oil price of US$45 per barrel and a gas price of US$3 per mmbtu.
“The allocation of resources for fiscal 2021 reflects our objective to consolidate and to reset the economy for growth and innovation,” he said.
Total revenue has been budgeted at $41.7 billion, up from $34.06 billion in 2020 and total expenditure is expenditure is $49.6 billion, $1.3 billion less than last year. The deficit is budgeted at $8.2 billion, a hopeful half of 2020’s $16.8 billion.
Education received the bulk of the budgetary allocations, with nearly $8 billion, up by about $500 million – including a $50 million joint project with the ministries of Social Development and Public Administration and Digital Transformation to provide digital devices to students in need.
Health was next with a $6 billion allocation, a few million less than last year; followed by National Security with $5.2 billion, nearly $1 billion down from last year. Agriculture’s $1.2 billion allocation is almost twice the amount it received last year.
RESTRUCTURING AND RECOVERY
One of the biggest budgetary announcements was the removal of the fuel subsidy – although Imbert shared the news in such a convoluted way it was hard to figure out that’s what he meant. The fuel subsidy, initially intended to keep prices low as a benefit of being an oil-producing nation, got expensive, he noted, and from 2006 to 2020, cost the country $25 billion.
“The fuel market should be liberalised…the fixed retail margins for all liquid petroleum products will be removed; petroleum retailers and dealers will now be allowed to fix their own margins,” Imbert said.
Wholesale margins will remain fixed for the time being, but a tax on the surplus will be applied. He said given current low oil prices there should be little or no increase in the price of fuel but if oil prices went up, there would be a proportionate increase. He added that all NP-owned and -operated gas stations will be privatised/sold, with current dealers given first preference.
Government also made the surprise announcement that it would privatise commercial activity at the Port of Port of Spain, although it would leave the inter-island ferry service in the hands of the Port Authority. Part of the reason for this recommendation, the minister noted, was because of the private sector’s experience internationally in managing port operations efficiently.
The Ministry of Works and Transport, with responsibility for the port, is now mandated to find a private sector operator by the end of fiscal 2021. There are also plans for the Port at Point Lisas to follow a similar pattern.
Technological transformation and innovation was also high on Government’s agenda, with a slew of incentives to inspire especially young people to invest in technology, including tax breaks up to $3 million, all available from January. For students with trouble getting internet access, Government will provide 45,000 Mi-Fi devices (personal hotspots), starting in the first quarter next year. There is also supposed to be a broad expansion and implementation of e-government services, including e-IDs.
FOCUS ON FOOD SECURITY
Agriculture, a sector long ignored as TT’s economy became based in oil and gas, is finally getting some attention. In addition to the $1.2 billion allocation, there will also be a $500 million stimulus package “to support the rapid expansion in production and marketing of selected high-demand commodities with short production cycles such as vegetables, legumes, roots and tubers, grains, fruits and small livestock; adequate quality seeds will be secured; the use of alternative feedstock will be encouraged, and land issues will be addressed with a view to accelerating land tenure and access to idle state lands.”
Government will also look into making housing more affordable to low and middle-income earners over the next ten years, incorporating a public-private partnership and incentives to contractors and developers to encourage building affordable housing.
The goal will be to deliver 10,000 starter homes at $250,000; 5,000 affordable homes at $350,000 to $500,000; 5,000 middle-income homes between $650,000 and $900,000; and 5,000 young professional homes valued from $1 million-$1.5 million. There will also be a stamp duty waiver for all first-time home-owners up to $2 million.
As always, the budget considered diversifying the economy which Imbert said is Government’s highest priority. Part of that will be improving the country’s competitiveness and improving its World Bank Ease of Doing Business ranking from 105 out of 190 countries.
Sectors for focus include manufacturing, especially for exports, construction, green technology, creative and cultural industries, financial services, agriculture and food and beverages.
“We are now focused on building an economy which is more inclusive and more sustainable. With traditional fiscal space unavailable, we are mobilising other partners in this recovery process, public-private-partnerships will support business enterprise and infrastructure development,” Imbert said.