An­tho­ny Wil­son

In tabling the 2013 Fi­nance Bill in the Sen­ate two weeks ago, Fi­nance Min­is­ter Lar­ry Howai said he was seek­ing the Sen­ate's ap­proval to sup­ple­ment the 2012 bud­get by adding $1.56 bil­lion "to fund ur­gent and crit­i­cal re­cur­rent ex­pen­di­ture to Sep­tem­ber 30, 2012." He al­so sought the Sen­ate's ap­proval to vary the 2012 bud­get by $2 bil­lion.

As a re­sult of these ad­di­tions and changes that are the pur­pose of this leg­is­la­tion, the Min­is­ter said the 2012 fis­cal deficit was $3.1 bil­lion or 2.02 per cent of GDP com­pared with the orig­i­nal bud­get that pro­ject­ed a deficit of $7.6 bil­lion or 4.5 per cent of GDP.

The Min­is­ter then said, and it is im­por­tant that he be quot­ed at length:

"Ho­n­ourable Sen­a­tors may re­call that at the time of the pre­sen­ta­tion of the 2012 Bud­get in Oc­to­ber 2011, the oil rev­enue was pro­ject­ed us­ing an oil price of US$75 and a gas price of US$2.75 per mm­cf.

"Based on these as­sump­tions, among oth­ers, the to­tal rev­enue pro­ject­ed for fis­cal 2012 was $46.9 bil­lion. Cor­re­spond­ing­ly, the fore­cast for ex­pen­di­ture was $54.6 bil­lion, re­sult­ing in an an­tic­i­pat­ed deficit of $7.6 bil­lion for fis­cal 2012.

"In Sep­tem­ber 2012, at the time of the prepa­ra­tion of the 2013 Bud­get, a fi­nal pro­jec­tion for fis­cal 2012 was pre­pared for in­clu­sion in the Draft Es­ti­mates 2013. The re­vised rev­enue was pro­ject­ed at $47.7 bil­lion and re­vised ex­pen­di­ture at $54.4 bil­lion, yield­ing an an­tic­i­pat­ed deficit of $6.6 bil­lion. This re­vised po­si­tion was laid and pre­sent­ed to the Par­lia­ment at the time of the de­liv­ery of the 2013 Bud­get in Oc­to­ber 2012.

"The fis­cal da­ta for 2012 has been sub­stan­tial­ly fi­nal­ized and the pro­vi­sion­al out­turn in Cen­tral Gov­ern­ment Fis­cal Op­er­a­tions for fis­cal 2012 is now a deficit of $3.1 bil­lion. This is $3.5 bil­lion less than the fi­nal re­vised pro­jec­tions. The vari­ance was main­ly as a re­sult of high­er than pro­ject­ed rev­enues of $1.2 bil­lion, the ef­fect of which was com­ple­ment­ed by a low­er than pro­ject­ed ex­pen­di­ture of $2.3 bil­lion."

Mr Howai said the in­creased to­tal rev­enue pic­ture was due to the Gov­ern­ment re­ceiv­ing $1.7 bil­lion more from en­er­gy com­pa­nies than orig­i­nal­ly an­tic­i­pat­ed. This was pri­mar­i­ly be­cause ac­tu­al oil and gas prices were high­er than those as­sumed for the last quar­ter of fis­cal 2012.

He said the Gov­ern­ment was al­so able to re­duce ex­pen­di­ture by $2.3 bil­lion to $52 bil­lion as a re­sult of the fact that goods and ser­vices ex­pen­di­ture was low­er by $887.9 mil­lion and that in­ter­est pay­ments were less than pro­ject­ed by $577.4 mil­lion.

"The low­er ex­pen­di­ture is at­trib­uted to the is­suance of few­er Trea­sury Notes and Trea­sury Bills (Open Mar­ket Op­er­a­tions) than were an­tic­i­pat­ed in the re­vised pro­jec­tions. In ad­di­tion, no new loans were ne­go­ti­at­ed and re­pay­ments on some loans were less than pro­ject­ed be­cause of favourable in­ter­est rates," the min­is­ter said.

Ac­cord­ing to Mr Howai, de­vel­op­ment pro­gramme ex­pen­di­ture was $629.4 mil­lion low­er than pro­ject­ed. Ex­pen­di­ture was low­er un­der the Con­sol­i­dat­ed Fund by $192.3 mil­lion and un­der the In­fra­struc­ture De­vel­op­ment Fund (IDF) by $437.1 mil­lion. This means that the Gov­ern­ment did not get around to ex­e­cut­ing its 2012 cap­i­tal ex­pen­di­ture pro­gramme, which has se­ri­ous im­pli­ca­tions for its com­mit­ment to stim­u­late the econ­o­my.

While much of the re­duced deficit was as a re­sult of fac­tors out­side the con­trol of the T&T–such as high­er oil and nat­ur­al gas prices than pro­ject­ed and low­er in­ter­est pay­ments on float­ing-rate bonds–the fact that the Gov­ern­ment was able to re­duce the fis­cal deficit from 4.5 per cent to 2.02 per cent of GDP is an out­stand­ing achieve­ment at a time when gov­ern­ments around the world are get­ting in­to trou­ble for high­er deficits than bud­get­ed.

It may be ar­gued that high­er rev­enue than an­tic­i­pat­ed and low­er ex­pen­di­ture than planned make this the right time for the Gov­ern­ment to im­ple­ment the nec­es­sary mea­sures to elim­i­nate bud­get deficits from T&T's fi­nan­cial lex­i­con.

There are two mea­sures that can be im­ple­ment­ed al­most im­me­di­ate­ly that will en­sure the coun­try would be able to bal­ance its ex­pen­di­ture and rev­enue in the fore­see­able fu­ture.

The two mea­sures are the elim­i­na­tion of the fu­el sub­si­dies and the in­tro­duc­tion of the prop­er­ty tax regime.

The elim­i­na­tion of the fu­el sub­si­dies will cut bil­lions from T&T's an­nu­al ex­pen­di­ture, while the in­tro­duc­tion of a prop­er­ty tax regime will add bil­lions in rev­enue.

It should be ob­vi­ous that these mea­sures would be eas­i­er to im­ple­ment when the econ­o­my is sta­ble, as it is now, as op­posed to wait­ing un­til the econ­o­my is in de­cline to cut the sub­sidy and in­crease the tax.

On the is­sue of the fu­el sub­si­dies, Mr Howai al­lo­cat­ed $4.45 bil­lion of the coun­try's to­tal ex­pen­di­ture to fund the 2013 "short­fall in the sub­sidy re sale of pe­tro­le­um prod­ucts," ac­cord­ing to the bud­get doc­u­ment 2013 Draft Es­ti­mates of Re­cur­rent Ex­pen­di­ture.

What that means is that the al­lo­ca­tion for the fu­el sub­sidy in the cur­rent fis­cal year ex­ceeds the to­tal bud­get deficit for the last fis­cal year.

It al­so means that the Gov­ern­ment is spend­ing more mon­ey sub­si­dis­ing pe­tro­le­um prod­ucts than it is fund­ing the Min­istry of Ed­u­ca­tion (with an al­lo­ca­tion of $4.28 bil­lion) or the Min­istry of Health (due to re­ceive $4.36 bil­lion).

And that fu­el sub­sidy rep­re­sents 58 per cent of the 2013 to­tal es­ti­mat­ed fis­cal deficit of $7.67 bil­lion.

It is al­so clear that the amount of mon­ey that the coun­try is spend­ing on the fu­el sub­sidy is grow­ing over time.

It must be not­ed that the es­ti­mate for the fu­el sub­sidy in 2013 alone is three times the re­vised es­ti­mate for 2012, when the coun­try spent $1.5 bil­lion to en­sure price sta­bil­i­ty for trans­porta­tion.

In the 2008 bud­get, for­mer Prime Min­is­ter Patrick Man­ning, pre­sent­ing his last bud­get as the Min­is­ter of Fi­nance, es­ti­mat­ed that the sub­sidy on pe­tro­le­um prod­ucts to keep down the cost of gaso­line amount­ed to $3.9 bil­lion be­tween 2002 and the 2007 fi­nan­cial year.

In pre­sent­ing the 2009 bud­get, Karen Tesheira, who served as Fi­nance Min­is­ter be­tween No­vem­ber 2007 and May 2010, ad­vo­cat­ed the con­ver­sion to CNG from gaso­line and diesel. She not­ed that the fu­el sub­sidy had cost the Gov­ern­ment an es­ti­mat­ed $2.4 bil­lion dur­ing the pe­ri­od Oc­to­ber 1 2008 to Sep­tem­ber 30, 2009.

That bud­get pre­sen­ta­tion was im­por­tant be­cause it came at the end of a long pe­ri­od of growth and pros­per­i­ty for the coun­try and it was clear then that the coun­try could no longer af­ford the fu­el sub­sidy.

In all the bud­gets since 2009, every Fi­nance Min­is­ter has ad­vo­cat­ed the con­ver­sion to CNG as a means of re­duc­ing the amount of mon­ey spent on the fu­el sub­sidy.

In the 2009 bud­get, Mrs Tesheira said: "The Gov­ern­ment is in the process of ex­pand­ing the dis­tri­b­u­tion of Com­pressed Nat­ur­al Gas (CNG) as we move to a cheap­er, eco­nom­i­cal­ly ef­fi­cient and en­vi­ron­men­tal friend­ly fu­el sys­tem. As a con­se­quence, we pro­pose to re­move the Cus­toms Du­ty and Val­ue added Tax on the Con­ver­sion Kits for mod­i­fy­ing from Gas to CNG. Mr. Speak­er, fur­ther to this mea­sure the Gov­ern­ment pro­pos­es to con­vert all pub­lic ser­vice ve­hi­cles to CNG us­age. The Gov­ern­ment will al­so put mea­sures in place to in­crease the num­ber of ser­vice sta­tions and ge­o­graph­ic dis­tri­b­u­tion of these sta­tions of­fer­ing CNG."

In the 2010 bud­get she said: "It is our in­ten­tion to in­crease the num­ber of ser­vice sta­tions re­tail­ing CNG through­out the coun­try be­fore the end of the new fis­cal year, as we pro­mote an en­vi­ron­men­tal­ly friend­ly, clean­er and cheap­er fu­el which will al­so re­duce trans­porta­tion costs to the ben­e­fit of com­muters and the na­tion­al econ­o­my."

In the 2011 bud­get, for­mer Fi­nance Min­is­ter, Win­ston Dook­er­an pro­posed a num­ber of fis­cal mea­sures aimed at en­cour­ag­ing dri­vers and fleet own­ers to con­vert their ve­hi­cles to CNG.

In the 2012 bud­get pre­sen­ta­tion, Mr Dook­er­an said: "Gov­ern­ment will em­bark on an am­bi­tious

pro­gramme for ex­pand­ing the use of Com­pressed Nat­ur­al Gas as an al­ter­na­tive ve­hic­u­lar fu­el. This is part of our over­all strat­e­gy to re­duce the use of pe­tro­le­um prod­ucts and so re­duce the size of the fu­el sub­sidy. We are al­so im­ple­ment­ing spe­cial mea­sures to en­cour­age the con­struc­tion of mul­ti-fu­el sta­tions to dis­pense gaso­line, diesel and nat­ur­al gas." He al­so said that sev­en new sites had been ap­proved for the con­struc­tion of mul­ti-fu­el sta­tions, which would be in ad­di­tion to the ex­ist­ing nine CNG sta­tions that are in op­er­a­tion.

Al­though tax ben­e­fits have been grant­ed to those who con­vert to CNG, it has had on­ly a min­i­mal im­pact on CNG us­age.

My view is that on the is­sue of trans­porta­tion, T&T cit­i­zens are less moved by tax­a­tion ben­e­fits than by the price of the prod­uct. It is al­so clear that un­less there is a firm dead­line, the im­ple­men­ta­tion of the con­ver­sion to CNG is go­ing to take much longer than the coun­try can af­ford.

There­fore, in terms of how the con­ver­sion to CNG should take place, my sug­ges­tion is that the coun­try should be told that fu­el sub­si­dies will come to an end in two years and that they would be grad­u­al­ly re­duced every six months un­til elim­i­na­tion.

This will give fleet own­ers, the Gov­ern­ment and own­ers of cars enough time to make the switch to CNG.

If they don't make the switch, they will sim­ply have to pay more for trans­port fu­el.

?