In his presentation of the budget for the 2012 fiscal year, Minister of Finance Winston Dookeran attempts to lay the foundation for the Trinidad and Tobago economy in the medium term but, in doing so, the country may be exposed to some significant downside risks if the world economy continues to slow as has been widely predicted.The bright spot in the 2012 budget is the Government's proposals to revitalise the local stock market.Mr Dookeran is right when he said T&T's small and medium enterprises continue to be over-reliant on bank financing. The Government is to be commended for its proposal that would see the corporation tax rate of eligible small and medium-sized companies reduced to ten per cent."We expect this tax incentive regime to encourage small and medium-term enterprises to access resources from the capital market," said Mr Dookeran.
The Government is also on the right track in terms of its proposal to partly divest First Citizens Bank, sell more shares in Plipdeco and create a new mortgage baking institution which will be partly divested.One area of potential risk for the economy is in the revenue projections put forward by the Minister of Finance.The Government expects to collect some $47 billion predicated on an oil price of US$75 per barrel and a price of natural gas of US$2.75 per unit, along with a projection for economic growth of 1.7 per cent and an inflation rate of seven per cent.The question that the technocrats at the Ministry of Finance need to answer is whether the T&T economy can generate $47 billion in tax revenue based on the assumptions that have been outlined in the 2012 budget.
The fact is that T&T collected $45 billion in total revenue for 2011, according to the Review of the Economy, and this was based on a revised weighted average price for crude oil of US$87.66 per barrel and for natural gas of US$2.75 per unit and a hugely successful tax amnesty programme.The likelihood of the economy generating more tax revenue in 2012 than in 2011, especially with no new taxation measures being proposed for the current fiscal year, seems remote. And this is despite the minister's overly optimistic projection about the ability of the economy to generate and attract new investment.But more troubling is the fact that Mr Dookeran's revenue projections are based on growth in the local economy.The ability of the local economy to grow-especially what is referred to as the onshore or domestic economy-is linked to the ability of T&T's manufacturers to expand sales in their regional markets.
But if there is no real recovery within Caricom, the prospects of manufacturing growth in T&T in the short term may be remote.Another factor that must be considered is the extent to which the recovery of the Caribbean economies-dependent as many nations are on tourism-is linked to growth in the major world economies.Given the direction in which the world economy is heading-with the United States limping along with at best a jobless recovery and with economies in Europe and Japan slowing down or stalling-the prospects for growth in the Caribbean market are slim.