Although in Monday's presentation of the 2016 budget, Minister of Finance Colm Imbert used the word "adjustment" on 14 occasions, the budget requires little adjustment by the Government or the population to the fact that the revenue in 2016 is likely to be nearly $19 billion less than the original estimates of revenue in the 2015 Budget.
The minister is predicting that T&T's revenue in the 2016 fiscal year will be 45 per cent less than in the previous year, yet he identified little reduction in the total proposed expenditure of the Government in 2016.
In fact, he proposed to spend slightly more than the previous administration, whose provisional estimate of expenditure for the 2015 fiscal year was $62 billion, compared with the current administration's $63 billion.
The rationale for the Imbertian approach is that "too large a withdrawal of fiscal stimulus could aggravate the current slowdown in the economy." This is like saying to a "spranger" (crack cocaine addict) that taking you off your fix immediately would be too traumatic for your system, so let us continue to enable your addiction for another few years.
The point needs to be emphasised that between 2010 and 2015 fiscal years, T&T recorded five years of budget deficits, requiring deficit financing of $27 billion, resulting in an economy at the end of the 2015 fiscal year that is estimated to be almost exactly the same size as at the end of the 2011 fiscal year ($165.3 billion vs $163 billion. The deficit in the 2015 fiscal year is estimated to be 4.2 per cent or $7 billion yet, according to the Central Bank, the economy contracted by close to 2 per cent in the first six months of this calendar year.
As was argued in this space last week, this Government needs to be judicious in its expenditure in the current 2016 fiscal year for exactly the reason that Mr Imbert noted (too large a withdrawal of fiscal stimulus could aggravate the current slowdown in the economy), but does it make sense for the Government to reduce capital expenditure rather than recurrent expenditure, especially the transfers and subsidies allocation?
Mr Imbert said: "Our capital investment programme for fiscal 2016 has been reduced to $7 billion or by 14.2 percent from fiscal 2015 in the exercise of our commitment to fiscal prudence." Is it not likely that it is the reduction in capital expenditure that could aggravate the current slowdown in the economy?
The other big mystery is how the Minister of Finance expects to collect $60.3 billion in total revenue during the 2016 fiscal year, including $54.8 billion in non-oil revenue in an economy that is contracting and in which the capital expenditure allocation will be cut by 14.2 per cent.
On page 5 of the Draft Estimates of Revenue 2016 document, it is disclosed that the revised estimate of VAT receipts for 2015 is $6.7 billion, but the revenue estimate for VAT collection in the 2016 fiscal year is $12.36 billion. That means the Minister of Finance expects to collect $5.6 billion more VAT revenue in 2016 than he did in the last fiscal year (although the number cited by the minister in his budget speech is the less ambitious $4 billion increase in VAT revenue). And it also means that 20 per cent of every dollar the Government proposes to collect in the 2016 fiscal year will come from VAT.
Based on the number in the Draft Estimates of Revenue document, the minister expects VAT receipts to increase by 85 per cent, even though he proposes to reduce the VAT rate from 15 to 12.5 per cent. He proposes to increase his VAT receipts based on enhanced tax collection/compliance and broadening the base by reviewing and adjusting exemptions and zero-rated items.
First of all, how long is it going to take the Ministry of Finance to enhance the collection and compliance systems that would have to be beefed up at the VAT office? Would the enhanced VAT collection and compliance mean the need to hire new VAT collectors or compliance officers or redeploy people from within the public service? Would these people need training? Is there the intention to prosecute retailers who do not pay the VAT that they ought to?
Secondly, is it realistic to expect VAT receipts to increase by $5.6 billion (or by $4 billion), based on a reduced rate and an increased base, when what was collected in the 2012 fiscal year before the zero-rating of many food items by former Prime Minister Kamla Persad-Bissessar was $6.3 billion.
Also on the issue of the revenue numbers is the fact that Mr Imbert proposes to generate $13.4 billion in one-off revenue by the sale of assets and the receipt of extraordinary dividends.
He envisions that this money will come from capital repayment by Trinidad Generation Unlimited ($4 billion), the proceeds of the TTNGL IPO ($1.5 billion), partial repayment by Clico relating to the Government's financial support and further dividends from the National Gas Company (NGC).
If the Government proposes to raise $5.5 billion from the IPO and from TGU and its total take from these measures is $13.4 billion then its stands to reason that it expects to get an additional $7.9 billion from Clico and from NGC in the 2016 fiscal year. Is it prudent for the Government to continue to eat, drink and make merry from the NGC trough, when the company contributed $5.2 billion in dividends to the Government in the 2015 fiscal year?
If the Government does not impose enough adjustment, or the right kind of adjustment on itself, it is also certainly not requiring enough adjustment of working people.
For most middle-income working people, the 2016 budget should be cash flow neutral: There is a reduction in the amount of taxes paid by everyone working for $6,000 and more, which will probably be offset by the immediate increase in transportation costs, as a result of the 15 per cent increase in the price of regular fuel and diesel, and the broadening of the VAT base.
But the reason for T&T's foreign exchange problems, that Mr Imbert had to take a drink before he addressed the issue during the budget presentation is the fact that the TT dollar is now grossly overvalued and there are billions of TT dollars out there looking to buy US dollars to import the cable television/credit card/amazon.com/sky box lifestyle.
Mr Imbert said that rebuilding confidence in the management of the country's foreign exchange market as the "current situation is untenable and has contributed to great uncertainty and capital flight."
He said that the Ministry of Finance had been in discussions with the Central Bank of Trinidad and Tobago, which had agreed on a collaborative effort for restoring confidence in the national economy.
Mr Imbert said: "As an initial step, the Central Bank in the discharge of its mandate for the management of the foreign exchange market, will be requested to re-establish the foreign exchange distribution system which existed prior to 2014.
"The Central Bank will also be requested to clear the backlog of arrears of foreign exchange demand and ensure that legitimate demands for foreign exchange are met, as well as ensure the stability of the exchange rate. As a Government, we are committed to ensuring an adequate and efficient supply of foreign exchange to our manufacturers and importers and to the citizenry at large and we also intend to take the necessary steps to protect our exchange rate from external pressures."
According to the minister, the Central Bank has been asked to: revert to the distribution system prior to April 2014; clear the backlog of demand; meet legitimate demands for foreign exchange and ensure stability.
This is largely the foreign exchange system that operates now with the Central Bank long ago having abandoned most of its April 2014 changes, clearing backlogs of demand every three weeks or so, attempting to meet "legitimate" demand and ensuring "stability" of the exchange rate.
As there is very little change in this new dispensation, which is being managed by the same Governor, on what basis does the minister expect a return to confidence in the foreign exchange management?