The 2011-2012 budget should be one of compromise, adjustment and negotiation. Failing that, Finance Minister Winston Dookeran who is expected to present the budget in excess of $50 billion on October 10, will find himself in a bind. The alert comes from economist Dr Dhanayshar Mahabir who is warning Dookeran that he should not give the impression that everything is okay or that things will go away soon. "If he does that, he will find himself in trouble. He has to be more transparent which will be more palatable."
Mahabir said Dookeran's biggest headache in the next few days will be dealing with the country's domestic debt. "He has to clearly outline what Government's priorities are, given the depressed economic condition globally and the fact that the prospects for Trinidad and Tobago are equally gloomy." Mahabir said Dookeran will be faced with two balancing acts: Stabilising unemployment which rose from eight per cent last year to ten per cent in 2011, and tackling the country's growth projections. In an attempt to raise revenue, Mahabir said Dookeran has the option of raising income and corporate taxes, but this has the potential to undermine the economic growth.
Mahabir said Dookeran could raise revenue by reducing some allowances without much negative fallout. In the area of expenditure, Mahabir said Dookeran is expected to face some major challenges. "I would like to see how much of his revenue he would like to see allocated to servicing his debt." Mahabir said the fact that Dookeran has a permit to borrow money doesn't mean he should. Calling on Dookeran to institute a public sector maintenance programme, which will be financed out of annual revenues, Mahabir also stressed that a public sector investment programme was also equally important.
Another area in which Dookeran will face great trepidation, Mahabir said, is the rising pension bill. Mahabir questioned the extent to which the Government continues to finance the pension obligation of the State, given the economic environment. "Dookeran has to come with a proposal for pension fund reform."
Debt servicing
Commenting on the tension between the Government and the trade union movement over increases in salary, Mahabir said Dookeran has to explain why there is a limit on how much he is prepared to pay. "He needs to articulate to the population what is the maximum amount of revenue he would like to see allocated to debt servicing." Mahabir said it was also incumbent on Dookeran to indicate the maximum percentage of his revenues he would like to see paid in salaries.
If Dookeran indicates that he does not want to pay any more than 20 per cent of his revenue in salaries and ten per cent in public debt, Mahabir said, he would be able to escape a lot of criticisms. Mahabir said Dookeran also needs to put hard budget constraints on state owned WASA and Petrotrin, which are subsidised to the tune of billions. "Failure to do that would result in more debt. Dookeran has to implement measures to arrest the ballooning of deficit state enterprises."
Taking a gamble
Insisting that revenues must be generated through the energy sector, Mahabir said Dookeran must decide what kind of fiscal concession he can afford, given the need to stimulate exploration activities. "This kind of concession is a gamble because it may or may not pay out." Dookeran, Mahabir said, has to decide what kind of gamble he wants to take. With regard to last year's budget, Mahabir described it as opaque, lacking transparency and more political than economic.
Had the Government commissioned an audit on public finances upon assuming office in 2010, we would have known our financial position, Mahabir said. "This is where Dookeran ran into trouble with the trade unions." He appealed to Dookeran to give a breakdown of allocation of funds to various ministries, which was clearly missing in the 2010-2011 budget.
'This year Dookeran has to get it right'
"I need to see more figures and less talk. This year Dookeran has to get it right." Mahabir said Dookeran should tell the population what was the cause of the economic decline, stating that there has been a great deal of misdiagnosis of the problem. When the international crisis broke in 2008, Mahabir warned that T&T would face a decade of economic turmoil. "We are in the third year since the financial crash and we are seeing no abatement of the decline."
Stating that T&T will be sliding in the next seven years, Mahabir predicted that the upcoming budget will be most challenging for Dookeran. "It will be like the Selby Wilson budget of the 1980s. It is going to be difficult because Dookeran has inherited a structure where the expenditure profile of the Government is rising and revenue flow is stagnant. He has inherited a huge gap, and closing the gap is going to create a lot of difficulty across segments of the country. But close the gap, he must."
Going awry
If Dookeran accepts that the next seven years will be difficult, Mahabir said, then it will be easier for him to make hard decisions now. "But if he keeps telling individuals that it is a short term problem, it will create more mayhem for him because everyone expects a piece of the pie." In a nutshell, Mahabir advised Dookeran to forge an allegiance with the Government, the trade union movement and private sector because "any one agent acting awry is going to make the adjustments over the next seven years a problem."
Sagewan-Alli: There must be clear, set targets
Economist Indera Sagewan-Alli said Dookeran must tell the nation how the Government intends to deal with diesel being stolen and sold at black market prices, causing a strain on the economy. Once this problem is addressed, Sagewan-Alli said, it can reduce expenditure. In the last year, Sagewan-Alli said, T&T saw a continued deterioration in business confidence as well as business willingness to borrow and engage in investment activity. "The business sector keeps telling you that they are looking for Government to lead the way."
Deserving of a significant increase in budgetary allocation, Sagewan-Alli felt, are the Ministries of Agriculture and Trade and Industry. She feels that $3 billion would be an adequate allocation for the Agriculture Ministry, having the potential to create sustainable employment. Sagewan-Alli said the Government should spend 2012 rationalising and auditing programmes to go forward. "If we are borrowing to spend, we have to be very clinical in terms of how we use that money." The spending, be it directly or indirectly, Sagewan-Alli said, must generate revenue opportunities. "It will also pose a major challenge."
Sagewan-Alli said the country has not seen an emergence of a well articulated developmental plan to which this Government is committed. "We are not getting down to the nitty-gritty of how we are going to transform the production platform of the country." Stating that she was very hopeful of last year's budget, Sagewan-Alli said, however, it did not live up to expectation. "I hope the Government learn from their mistakes." Sagewan-Alli said there must be clear, set targets by Dookeran. The budget must also be evaluated at the end of the first, second and third quarters.
WATSON: THE BUDGET SHOULD BE ONE OF TAKE OFF
Dr Patrick Watson, an economist, said this budget should be one of "take off"and should inspire confidence in investors. "Last year the budget was based on settling down." Watson said the time has come for investment to take place to increase capacity or to use capacity. "That is the only way we will ensure that employment remains high." Watson said it was imperative that we create an economy away from oil and gas, if necessary. Watson said he was disappointed that the public sector investment programme kicked in late last year. "We have to see the consolidation and expansion of that."
Emphasis, Watson said, must be placed on encouraging business activity either through entrepreneurship or established business activity which should be outside of oil and gas. Questioned about the $4.8 billion gas subsidy which Dookeran has hinted will be retained, Watson said over time that subsidy must go. "They may choose not to start it this year. But if I have my own way, it would have started this year." Insisting that Dookeran's first budget was generally good, Watson said the one fault was that over time, the capital expenditure was not rolled out in time. "When you are spending money on capital activity there is a procurement process that you must go through. That's why some special purpose companies were formed to bypass that. That is what landed the PNM in trouble and it cost them the Government."