In last Friday's 2017 budget speech, Minister of Finance Colm Imbert said total expenditure for the 2016 fiscal years had been "tightly managed" down to an estimated $52.2 billion, which was $11 billion less than the original expenditure estimate that he provided in October 2015. By my calculations, that means the Government reduced spending by 17.1 per cent in the past fiscal year compared with the original expenditure.
According to Mr Imbert, the Government was forced to reduce spending by 17.1 per cent in the 2016 fiscal year because its revised estimate of the amount of revenue it collected in the 2016 fiscal year was $45 billion, which is 25.4 per cent less than the Government originally projected to receive.
The estimated total expenditure of $52.2 billion in 2016 with revenue totalling $45 billion, means that the 2016 projected fiscal deficit of $7.2 billion was more than double the $2.7 billion originally projected.
In providing these figures during the budget presentation, Mr Imbert took issue with "those uninformed commentators, who keep saying that the PNM government has not cut back sufficiently on expenditure."
Mr Imbert went on to congratulate, as a "truly remarkable accomplishment", the performance of the Cabinet in "managing the country's finances successfully...with such drastic reductions in revenue and expenditure without social unrest and disorder."
Does the current administration deserve to be commended for reducing expenditure by 17 per cent in the context of the 25 per cent reduction in revenue?
To an extent it does, simply because T&T is an economy that has been so dependent on oil and natural gas revenues, which are difficult to predict because of the volatility of their international prices and the fact that both oil and gas production have been in decline for some years now.
In economies like ours, it is much more difficult to predict revenue accurately than it is to reduce expenditure, which can be done by delaying projects, not hiring new people to replace retirees, postponing payments to suppliers and contractors and cutting back on orders for goods and services.
In explaining the 25 per cent shortfall in revenue, Mr Imbert pointed at four factors:
�2 The fact that energy revenues declined substantially over the last year (which no government has control over)
�2 Some legal issues surrounding the collection of property taxes
�2 A sizeable shortfall in VAT collections, compared with the projections made at the time of the 2016 budget, because of the downturn in the economy, and the fact that "tax evasion related to value-added taxes continues to be a major issue."
�2 One-off capital revenues were about $3 billion less than estimated, the minister said, because of significantly lower dividend payments from the National Gas Company, reflecting depressed gas prices.
While the minister of finance may receive a 'bligh' for the declining energy revenues and possibly for the failure to implement the property tax regime during the last fiscal year, he has more explaining to do with regard shortfalls in collection of VAT proceeds and the one-off capital revenues.
VAT proceeds
In preparing the 2016 budget, Mr Imbert apparently allowed himself to be convinced that T&T was capable of generating $12.36 billion in VAT revenues during the 2016 fiscal year.
The original estimate of VAT collection in the 2016 fiscal year represented a 71 per cent increase over the $7.2 billion that was actually collected during 2015.
It was always highly unrealistic that the reduction of the VAT rate from 15 to 12.5 per cent while widening the umbrella would result in such a significant increase in collections–particularly in the context of a declining economy.
As it stands, the revised estimate of VAT collection for the 2016 fiscal year was $7 billion, which is slightly less than the $7.22 billion collected in 2015.
For the 2017 fiscal year, the government projects that it will collect $7.82 billion, which is 11.5 per cent more than the revised estimate for 2016.
Is it realistic to expect the T&T economy to yield more VAT revenue in 2017 than in 2016, when the economy is expected to decline again this year (the budget is quiet on by how much though)?
Does the Ministry of Finance have a plan to address "the tax evasion related to value-added taxes," which the minister argues continues to be a "major issue."
On the issue of tax collection, if Minister Imbert is convinced that the current arrangements at the VAT office would not yield an increase in revenues in the short-term, he should give serious consideration to outsourcing the collection of VAT and paying the tax collectors based on how much money they collect.
The outsourcing of VAT revenue is necessarily a short-term measure simply because even if the revenue authority is established during the current fiscal year, that institution would need at least three years before it is fully functional.
One-off proceeds
In addressing the issue of the shortfall in one-off capital revenues for the 2016 fiscal year, Mr Imbert did not provide the nation with the level of accountability that the nation should reasonably have expected.
This is because in the delivering the 2016 budget, Mr Imbert projected that he would receive $13.4 billion in one-off capital revenue, including:
�2 Partial repayment by Clico relating to the Government's financial support
�2 Proceeds from the Initial Public Offering of T&T NGL
�2 Capital repayment from the electricity generator TGU
�2 Dividends from the National Gas Company
Clico
1) In delivering the 2017 budget, Mr Imbert made no mention of the amount of money that the country received from Clico during the 2016 fiscal year or the balance owing to T&T.
In the mid-year review, he had said: "The sale of some Clico assets, including MHIL, will add another $3 billion in revenue." For reasons not yet disclosed, Mr Imbert declined to account to the nation for his government's stewardship of the Clico/CL Financial matter.
In the mid-year review, as well, the minister said: "With particular reference to lands owned by Angostura and/or Home Construction, it is the Government's intention to acquire these assets for public purposes such as housing, tourism and infrastructure development."
Although Mr Imbert spent much time extolling the virtues of the proposed Sandals project for Tobago, he failed to mention that the land on which the project is proposed belongs to Clico and therefore must form part of the final resolution of that issue. Quite unfortunately, the minister did not issue a syllable on the Clico resolution in his budget speech.
T&T NGL
Although the minister spoke about the offer for sale of a second tranche of T&T NGL shares–which this column strongly supports, along with the sale of additional shares in First Citizens–he made no mention of what had become of the proceeds of the first sale of shares.
In one of the 2017 budget documents, there is a sum of $1.5 billion representing net proceeds of the T&T NGL IPO in the original estimates but not in the revised estimates. Was that money ever paid to the government?
TGU
Mr Imbert spoke about the sale of 20 per cent of Trinidad Generation Unlimited to institutional investors such as the National Insurance Board and the Unit Trust Corporation, but there was no mention of the repayment by TGU of the balance of money owed to the Government.
In the mid-year budget review, the minister had said: "Having already received US$300 million ($1.9 billion) from TGU, we expect to collect a further US$225 million ($1.7 billion) from TGU in the second half of this fiscal year."
In fact, the 2017 Draft Estimates of Revenue document indicates that the original estimate of capital receipts for 2016 was $9.5 billion, but the revised estimate was $3.9 billion–a shortfall of $5.6 billion.
That document indicates that the Government expected to receive $5.8 billion during the 2016 fiscal year in what is called "extraordinary receipts" but only received $3.6 billion. There is an expectation that T&T would receive $8.2 billion in "extraordinary receipts" in 2017, but no accounting for the shortfall in 2016 or clarity on where that money is coming from.
Actually, in the budget speech, Mr Imbert envisages that he would collect $9.69 billion from one-off revenues, which accounts for 21 per cent of the total projected revenue in 2017.
Finally, it is unusual that Mr Imbert would claim that the 2017 budget "continues the fiscal consolidation process geared to bring expenditures into better alignment with available revenue" when the total expenditure for the current fiscal year is projected to be $1.2 billion more than the estimate of spending in the 2016 fiscal year.