In a recent speech before business executives at the Trinidad and Tobago Chamber of Industry and Commerce, Central Bank Governor Ewart Williams inched out of his crease somewhat as he sought to draw the nation's attention to his call for the country to achieve a more sustainable fiscal position.The speech on November 30 at the Westmoorings headquarters of the T&T Chamber was not the first time that Governor Williams had called for a more sustainable fiscal position.Last week's speech was the first time that Mr Williams defined more precisely what he means by a more sustainable fiscal position and it was the first time that he linked the need for a fiscal paradigm shift to the reality of declining energy sector taxes in the future as T&T's energy reserves undergo an inexorable decline.
According to the Governor: "This strategy will require a combination of measures to increase non-energy tax collections and concerted efforts to reduce the share of subsidies and transfers in total government expenditures."This kind of fiscal consolidation will allow a return to fiscal balance, while leaving adequate room for productive investment in education, health and infrastruc- ture. It will also permit an increase in the rate of savings in the Heritage and Stabilisation Fund."The Governor's logic is predicated on two major assumptions: that declining taxes from the energy sector will have to be replaced by more taxes collected from the non-energy sector and that if expenditure in T&T is to be reduced that process should begin with the category of spending called subsidies and transfers.
The amount of subsidies and transfers in budgets in the last decade has grown by leaps and bounds, primarily because the previous administration was concerned that the wealth that the nation was earning from the exploitation of its natural resources of oil and natural gas should be distributed as widely as possible among the citizens of the country.These subsidies and transfers are responsible, among other things, for the fact that the prices of gasoline, electricity and water in this country are among the cheapest in the Western Hemisphere. This means that a mid-level public servant in T&T pays a smaller percentage of her after-tax salary on transportation and basic utilities than a similarly placed public servant anywhere else in the region.
Among the subsidies that account for a significant percentage of taxpayers' dollars are the inter-island ferry service, the provision of houses with ultra-low interest rates, the free pharmaceutical programme called CDAP and the State picking up the bill for tertiary-level education.All of these subsidies contribute to improving the quality of life of citizens and any government in a democracy would need to think long and hard before it decides to interfere with these subsidies, which those who benefit from them quickly begin to consider to be entitlements.But if there are any lessons coming out of the experiences of Greece, Ireland, Spain, Portugal and Italy, it is that governments that maintain "entitlements" that their economies cannot afford soon find themselves in serious financial troubles.Given the Governor's warning, it would be prudent for the Government here to conduct some analysis on the subsidies that the country can most afford to do without and proceed to eliminate those over time.