In Thursday's commentary, which was headlined, "Is Mr Imbert too pessimistic on the T&T economy," an assessment of the local economy was put forward that the country's fiscal position was worse than Minister of Finance Colm Imbert has, up to now, implied, inferred or suggested.
Given the reading of the economy outlined in that analysis, it was argued that the gap between tax revenue and total expenditure for the 2016 fiscal year could be as large as $27 billion. In other words, that Mr Imbert may need to find some $27 billion in non-tax revenue in order to achieve the 2016 budget target of $2.8 billion or 1.7 per cent of GDP.
In presenting the 2016 budget, Mr Imbert identified that he would need additional revenue of $18.6 billion, in order to achieve his fiscal target. That $18.6 billion would be raised by taxation measures that were expected to yield $5.2 billion, which was meant to be supplemented by $13.4 billion from a sale of assets programme and the receipt of extraordinary dividends.
According to the Minister of Finance, the non-tax revenue raising measures that he expected to generate $13.4 billion would include:
1 the partial payment by Clico relating to the Government's financial support;
2 the proceeds from the initial public offering of T&T NGL (Phoenix Park Gas Processors)–$1.8 billion;
3 capital repayment from Trinidad Generation Unlimited–$3.9 billion (or US$600 million)
4 dividends from the National Gas Company.
The 2016 Draft Estimates of Revenue project that the Government would finance its 2016 fiscal programme in the following manner:
�2 Tax revenue–$40.8 billion
�2 Non-tax revenue–$8.7 billion (profits from state enterprises: $5.8 bn; royalties: $1.1bn)
�2 Capital receipts–$9.5 billion (sale of MHIL: $2 bn; "extraordinary": $7.3 bn)
�2 Borrowing–$6 billion (domestic: $4.3 bn; foreign: $1.8 bn)
Total–$65.2 billion
That means it was envisaged that tax revenue would generate 62.6 per cent of the $65.2 billion the Government expects to spend in the current fiscal year (with the difference between that number and the $63 billion announced in the budget statement being partly sinking fund contributions and infrastructure development fund).
The question that should be focussing minds across this nation is this: if the Government is only able to collect $31 billion in tax revenue–which is about $10 billion short of the $40.8 billion originally projected–where will the balance of the money come from?
The Government has some options, which include the following:
�2 Squeeze more than the estimated $6.5 billion in profits the Government expects to harvest from state enterprises;
�2 Increase the amount of money the Government expects to get from capital receipts, which includes $7.3 billion the revenue estimate calls "extraordinary" but which is totally undefined.
�2 Sale of state assets–such as the State's 51 per cent stake in TSTT or NGC's distribution network, both of which were signaled by the prime minister–would facilitate an increase in capital receipts;
�2 Place the burden of getting most of the $10 billion on debt, by increasing the Government's borrowing in the 2016 fiscal year. This would mean raising the amount of money the Government expects to get from the capital markets, both local and foreign. That would be risky because when the Government is ready to raise funds, either locally or internationally, it may find the capital markets quite unreceptive in accommodating the State at interest rates it may find acceptable;
�2 Tap the Heritage and Stabilisation Fund (HSF), with Prime Minister Keith Rowley signaling that the Government would use about US$1 billion ($6.5 billion) for stabilisation purposes in the current fiscal year in his December 29, 2015, address on the state of the economy. While sourcing funds from the HSF would reduce the balance to US$4.6 billion, clearly a significant aspect of the mandate of the HSF is treating with situations like the one T&T finds itself in at this point;
�2 Through a public private partnership arrangement, the Government could sell and lease back assets such as the Richmond Street Campus or the Couva Children's Hospital, which would allow the State to fully recover the cost of constructing and outfitting these properties. This would lead to a one-off inflow of capital revenue, but annual outflows of lease payments to the new private sector "owners." The sale of Richmond Street and Couva could generate up to $6.5 billion for the Government, but could mean up to $650 million a year in lease payments.
The same impact could be achieved by creating a US-dollar real estate investment trust (REIT) out of the government-owned assets, which could result in a US$1 billion capital receipt inflow and annual lease payments of US$100 million. The REIT, in the case of the hospital, could be linked to a hospital management team and either be privately run for profit or with negotiated payments by the Ministry of Health for each "public" patient or both.
It seems to me that if the Government were to think out of the box, it may find that the privatisation/divestment of some of the state's crown-jewel companies, along with the sale and lease back of key assets, would go a long way to address the larger-than-expected shortfall between expenditure and revenue in the current fiscal year.
Done with the appropriate attention to detail and transparency, such a programme would ease the burden of the Government having to tap the HSF for the full US$1 billion and being forced to raise money in the local and international capital markets at a time when interest rates are rising.
The privatisation and the sale/lease back of state assets would also ease the Government being forced to think up new ways of reaching into the pockets and bank accounts of middle-income households, which are likely to be under increasing pressure from the imposition of the new VAT regime, the reintroduction of property taxes, the further reforms to the gasoline subsidy and the increase in national insurance contributions, scheduled for July this year.
The economic situation that T&T finds itself in simply does not allow us the luxury of ruling out any options to which some of the outmoded Marxist elements in this society may harbour irrational, unsubstantiated ideological antipathies.
What is required now is for the Minister of Finance or the Prime Minister to hold consultations to get the views of all the social partners on the way forward, given the dire economic situation this country–along with all of the other energy producers in the world–finds itself.
The question to lead off the consultation should be: if you do not approve of privatisation and you hate the idea of selling and leasing back state assets, how would you finance the $28 billion fiscal hole the country may find itself in at the end of the 2016 fiscal year?
In other words, let the onus be on the social partners to come up with the suggestions so they all feel part of the solution...instead of standing outside the process and constantly criticising the work of the policymakers.