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Have governments misled citizens on subsidies?

Published: 
Thursday, May 18, 2017
Finance Minister Colm Imbert,right, during an interview with CNC 3s Golda Lee Bruce on Monday night

Last week, I argued that administrations in the 15 years between 2000 and 2015 distributed a significant amount of wealth to the population, which contributed to a huge rise in the average standard of living in TT.

That transfer of wealth came in the form of huge transfers of wealth to ensure that the population did not pay the economic cost of education, healthcare, gasoline, pharmaceuticals and inter-island transportation, among many others.

But the transfer of wealth also came in the form of regular salary increases to unionised companies both in the public and private sectors.

As well, a significant transfer of wealth to the population resulted from the decision by the Manning administration in 2006 to adopt a flat personal income tax regime at a rate of 25 per cent. Along with the flat tax, the government promoted the standard of living of the population by adopting in 2006 a personal tax allowance at $5,000 a month, which was the threshold below which no one paid any income tax.

I have referred, on a number of occasions in this space, to an extremely useful April 2012 paper by Central Bank economist Joseph Cotton entitled “The buoyancy and elasticity of non-tax revenues in Trinidad and Tobago (1990-2009).”

In that paper, Mr Cotton points out there were 11 tax bands in 1988, with people earning chargeable incomes of over $40,000 a month being required to pay a tax rate of 50 per cent.

Up to 1996, there were four tax bands with people earning between $12,000 and $20,000 paying a rate of 15 per cent and those earning a chargeable income of above $40,000 paying 35 per cent.

In 2009, as well, the tax-free allowance on pension fund/annuities/NIS contributions increased to $30,000 from $12,000 in 2006.

All of those factors—higher salaries, a lower tax at 25 per cent, the increase in the amount that could be saved tax-free in an annuity as well as the introduction of new subsidies such as GATE, CDAP—allowed the average taxpayer to retain a larger percentage of their total incomes as disposable income.

Along with the massive and unprecedented subsidies to water, electricity, healthcare, education that continued, the macro-economic policies implemented by Patrick Augustus Mervyn Manning facilitated a huge increase in the standard of living of a majority of the T&T population.

Unfortunately, the T&T population has remained totally ignorant of the fact that this improvement in their standard of living was almost ENTIRELY due to the tsunami of tax revenues that the government collected from Atlantic LNG, and its component companies such as BP, BG (now Shell), in the last decade.

The population remained ignorant, then and now, because no politician in the 11 years since Mr Manning’s fiscal largesse of 2006 ever told citizens that the ability of the government to afford subsidised water, subsidised electricity, subsidised healthcare, subsidised education, subsidised housing, subsidised inter-island transport and many other subsidies was DIRECTLY linked to the four liquefaction trains at Point Fortin.

It could very well that no one in this Cabinet, or the previous one, understands that the subsidies and the tax breaks are a function of the revenue from LNG.

If I am wrong, I invite any member of the current or previous Cabinets to email me at [email protected] and tell me so.

And when you do, please explain to me why, if you understand the link, have any Cabinet members—not Keith Rowley, not Kamla Persad-Bissessar, not Colm Imbert, not Larry Howai, not Winston Dookeran and not Karen Tesheira—explained the link with any clarity.

 

Because understanding without explaining that crucial link to the population is absolutely useless. Not only useless but dangerous. What do I mean?

The failure of the politicians to explain the direct and obvious link between LNG prices and production and the transfers and subsidies, higher salaries and lower taxes that the T&T population enjoyed between 2004 and 2014 is extremely dangerous because 99.9 per cent of the citizens of this country do not get the simple fact that if our LNG production and prices have declined, then the country simply does not have the money to afford the massive subsidies and tax giveaways of back in the day.

The fact that there has been such a tremendous push back on the puny amount of property tax the average owner of property is required to pay illustrates the lack of understanding of the population; especially those landlords who have collected rents for decades without declaring any of that income to the Board of Inland Revenue.

On Monday night, in his interview with Golda Lee-Bruce, Mr Imbert came close to demonstrating an understanding of the link, but he still “hopes” he can avoid the massive disruption that will come from the necessary reduction in subsidies and tax breaks.

It is clear to me that Mr Imbert would rather the population continue to live in La-La Land than face the reality of our situation.

And the reality is that if our revenues have dropped from $57 billion to $37 billion, we probably only have one more year of being able to continue avoiding the dramatic fall in our earnings.

One more year in which Mr Imbert can make some modest cuts to expenditure and squeeze a modest amount of taxes out of the population, while funding the gap between revenue and expenditure by borrowing, drawing down our savings, selling state assets, taking unusual dividends from state companies and subsidising the exchange rate.

Don’t you think, Mr Imbert, the population deserves to know in advance what it faces if your “hope” does not materialise?

If the population does not know that the government only has one year of “chinksing”, how will they react if the government, in delivering the fiscal 2019 budget in September 2018, is forced to opt for the nuclear option of a dramatic slash of the total allocation on transfers and subsidies?

Would it not be better for everyone to explain that T&T simply cannot afford all of the subsidies the citizens have been getting and demonstrate that inability to afford by gradually removing some of those subsidies?

What about a 5.0 per cent increase in water rates and electricity bills or a 10 per cent increase in the cost of the inter-island transportation?

Is it not a little strange that the price of everything in this country has increased in the last 10 years, except for electricity, water, the cost of a ferry or plane ticket to Tobago and the other services that are subsidised?

The average citizen of T&T has absolutely no gratitude that they had it so good for so long. That they lived in a country in which between 1994—which, by the way, is the years after Wendell Mottley floated the T&T dollar and allowed citizens to legitimately hold US dollars in local banks—and 2006, their standard of living would have improved incrementally every year. And in 2006, their standard of living would have taken a quantum leap.

And that we are not likely to see a year like 2006 again.

2016 Transfers and Subsidies (T&S)

 

• Total T&S spending $27.407bn

• Transfers to households $9.753bn

• Other transfers $8.155bn

• Transfers to statutory boards $7.386bn

• Transfer to state enterprises $1.995bn

 

• Total estimated spending $52.234bn

• T&S percentage of total spending 52.6%

• T&S decline between 2015/2016 10.4%

• T&S decline between 2014/2016 20.6%