Two economists have called the UNC’s proposed plans for the fiscal management of the nation questionable and improbable.
In an interview with the Business Guardian, Tobagonian Dr Vanus James said: “The overall promise of a balanced budget over 2020-2025 is not likely to be feasible in the context of a depressed economy post-COVID and in the context of a promised reduction of various tax rates (individual and corporate, and consumption).”
In the Debt Consolidation and Management Strategy section of the UNC’s National Economic Transformation Masterplan 2025, the party stated its intention run a balanced budget over the 2020-2025 period and to establish the debt to GDP ratio at 60 per cent by 2025.
However, in another part of the Masterplan, the UNC indicated that it would remove and reduce a vast array of taxes.
The party indicated that a new UNC Government would strengthen, re-engineer and transform the Board of Inland Revenue (BIR), the VAT Office and Customs and Excise.
It explained that this institutional strengthening is important to improve revenue collection and address weaknesses in tax administration and compliance.
The party added that it would scrap the proposed revenue authority, dismiss the controversial property tax, reduce personal income taxes (PAYE), decrease corporation taxes and remove VAT on over 7,000 items.
The UNC plan indicated that government has stifled businesses and crippled their cashflow through non-payment of VAT refunds.
However, James disclosed that taxes on consumption would tend to be highly regressive (taking a larger percentage of income from low-income earners than from high-income earners) and that would become an issue when the time comes to implement a shift to such taxes.
James continued to highlight inconsistencies, noting: “This party (UNC) has long opposed the property tax but still embraces land and building tax. There seems to be some need to clarify this stance, since land and buildings qualify as most of what is called property under the property tax.”
According to James, debt sustainability would involve more than management of payments. He indicated that the key tool in this proposed debt management strategy is usually to grow the economy faster than the rate of interest on the debt.
Further, James observed that the promise is to shape a proper debt management strategy and target, but the document has already decided that a 60 per cent debt to GDP ratio is optimal.
In the UNC plan it announced that it would “establish formal fiscal and debt targets” and communicate these to the market and the general public.” It noted that it (UNC) intends to run a balanced budget position over the 2020 -2025 period and to stabilize public debt at about 60 per cent of GDP by 2025.
James said that this is a likely contradiction.
Also commenting on the plan was, development and economics consultant Dr Indera Sagewan who expressed that, when taken at face value - the plan has a good ring to it. She noted: “We must recognise that the document is for the purpose of public relations.”
However, Sagewan said, “when you try to drill down” to the details of the plan - it is only then you would be able to determine whether the proposed strategy can in fact, be realised.
She contended: “A lot of the projections being presented through the plan, at this point in time, we can only analyse it at face value, because we do not know what the underlying assumptions and mechanisms are for making this thing happen.”
With regard to having a balanced budget, Sagewan said that the plan where the party would by intentionally foregoing current revenues through the tax programme by cutting taxes and zero rating VAT on all food items - that means the party would willingly forego the income that would normally be produced.
Albeit, Sagewan argued that if revenue is being willingly forgone from current revenue streams while increasing expenditure through transfer payments (mentioned in various parts of the plan) then the only way to arrive at a balanced budget somewhere down the line is through increasing alternative revenue streams.
And while the UNC in its plan has proposed the non-energy diversification in its ‘Masterplan’ as a source of additional revenues, Sagewan highlighted that diversification is not a short-term revenue generating mechanism.
She posited: “You know with any new business - it takes three to five years before the business turns a profit. So I mean if we’re starting the diversification process it really begs the question as to whether in four years time (2025), that government would be able to be realizing the kinds of taxes on these new endeavours.”
Another way that the UNC plan proposes to raise revenue is to increase duty rates on non-essential imports. It said: “To compensate for the removal tax on income below $1 million, import duties will be raised. Certain basic food, medicines and essential items will be exempt from import duties to ensure affordability to the poor and most vulnerable.”
However James expressed concern with this proposition. He said, that T&T is an import-dependent country and therefore “non-essential has a very limited meaning”. Hence the reason James asserted that rising import duties tend to be cost increasing and self-defeating.
He expressed the possibility that the fuller UNC plan has already considered complements to this strategy that take account of the competitive strategy the country will pursue to achieve self-sustaining growth, including through collaboration within CARICOM.
If not, James said that he could foresee trouble when implementing this proposal.