Last update: 04-Dec-2013 12:33 pm
Wednesday, December 04, 2013
Trinidad & Tobago Guardian Online
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IMF: T&T urgently needs to re-engineer spending
The International Monetary Fund (IMF) says there is an urgent need for the T&T Government to re-engineer the composition of its spending. The agency, which oversees the international monetary and financial system and monitors the economic and financial policies of its member countries, warned: “Subsidies and transfers are on an unsustainable path, eating up a rapidly growing share of total spending, from 45 per cent in FY (fiscal year) 2007/08 to 53 per cent in FY 2012/2013.”
The IMF said some subsidies and transfers are poorly targeted at rich and poor alike. The agency also said costly fuel subsidies are disproportionately benefitting the wealthy and “contribute to severe road congestion that is materially harming productivity” and there is a widely held belief that the employment programmes may be providing disincentives to seek more productive employment.
It recommended that other subsidy and transfer programmes be evaluated against the criteria of whether they help to provide “public goods” and/or improve income distribution. The report continued: “There is substantial scope to improve the efficiency and incidence of revenue collection in the non-energy sector. A range of options is available.
“Given current inefficiencies in the tax regime, it should be possible to take measures aimed at increasing total revenues through broadening tax bases and increasing targeted tax rates, while also increasing the efficiency and progressivity of the tax system.” The IMF said while the budget had laid out a medium-term goal of improving the fiscal balance by a minimum of one per cent of GDP a year, the T&T government has not yet announced a specific set of policies to achieve this goal.
The agency warned that with current policies the fiscal balance and debt ratios will continue to worsen over time. IMF officials estimated that starting from a fiscal deficit for 2012/13 of 2.5 per cent of GDP, passive baseline policies would lead to an overall deficit of 4.5 per cent of GDP by 2018.
The agency said tax reform that raise non-energy revenues by 3.2 per cent of GDP over five years would compensate for the gradual decline in energy revenues; a gradual reduction and better targeting of transfers and subsidies on the order of three per cent of GDP by 2018; and a modest but sustained increase in capital spending that would bring total expenditure share down to the 2012 level.
“The tax reform could include a simplification of the VAT that rationalises exemptions without a rate increase, a phased in property tax reform, and a revision of the personal and corporate income taxes to make them more progressive and modern, while also simplifying the schemes by eliminating multiple exemptions and deductions accumulated over time.” The IMF said this could cut the non-energy fiscal deficit from 18.5 per cent of GDP to 11 per cent by 2020.
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