When former Finance Minister, Winston Dookeran, delivered the 2012 budget on October 10 last year, he estimated that the local economy would grow by the modest rate of 1.7 per cent in the period between October 1, 2011 and Sunday, the end of the fiscal year. It’s almost certain that when the final numbers on the 2012 fiscal year are tallied up, that the actual growth rate would be well short of that... The Trinidad and Tobago economy is likely to be either stagnant or in decline. According to the Central Bank statistics, the economy was flat during the first quarter of 2012, registering real GDP growth of 0.0 per cent. A decline of 0.4 per cent in the energy sector during the first quarter was offset by growth of 0.3 per cent in the non-energy sector. Some parts of the non-energy economy are growing... as supermarkets and groceries recorded increased sales of nearly eleven per cent and the sales of motor vehicles and car parts was up by more than eleven per cent. Other important sectors, though, are in decline... construction, which is an important provider of employment, declined by four per cent, as the sector was hit hard by the strike at cement provider TCL, which went on from February 27 to May 26. Apart from dragging down hardware sales during the first half of calendar 2012, the TCL strike also spilled over into the production of concrete and other parts of the manufacturing sector that use cement as an input.
A significant contributor is the prevailing global environment of slower growth, but some analysts also point to the issue of the lack of confidence in the T&T economy by local and foreign investors. If investors lack confidence in an economy, they are not likely to make decisions on large investments in that economy. So while the upstream part of the energy sector is abuzz with activity and new exploration investment, there have been no new projects in the downstream energy sector in years and very few new manufacturing projects either. In an attempt to stimulate the economy out of its stagnancy, the Government has decided to run fiscal deficits for 2013 and for the two years after that. But the deficit in the current fiscal year has done nothing to stimulate the economy in 2012 and there is some doubt that government spending alone will do the trick in 2013. Many analysts argue that for the local economy to get moving the private sector will have to get involved—but that is easier said than done.
Why is growth important?
If the economy is growing, more people are employed, it is easier for private and state-owned companies to increase wages and more companies get established—especially in the non-energy sector where most of the T&T workforce is employed. But in economies that are stagnant or are in decline, the rate of unemployment begins to creep up, wage increases become compressed and there is less incentive for the creation of new enterprises. All of which means that countries that experience stagnation or decline are also likely to generate less tax revenue over time. The evidence of the link between a growing economy and the increase in taxes can be found in the fact that the most taxes ever collected by the Treasury was in the 2008 fiscal year, the last year of unequivocal economic growth in T&T, when the Government received $56.8 billion in revenue. In delivering the 2012 budget, Dookeran predicted that the Government would receive $47 billion in revenues, which is 21 per cent less than in 2008.
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