The lessons of the pandemic must be used to push Trinidad and Tobago forward.
This was the shared view of economists as they assessed the Government’s last fiscal package, and looked forward to Minister of Finance Colm Imbert’s presentation next Monday.
Economist and lecturer in Finance Vaalmikki Arjoon has touted that “Economic Freedom” ought to be the theme for Budget 2022, given the strain placed on the economy by the lockdown measures introduced in the past 18 months which have caused “severe damage to revenues and cash flows earnings for the private sector, job losses, and weakened household incomes.”
Arjoon highlighted the impact on just one sector to emphasise just how devastating the past two years had been.
“Consider the retail sector – in the second quarter of 2020 (the height of the first lockdown), retail sales fell by 17% and when we drill down into the data, hardware sales fell by 34%, household appliances and furniture fell by 8%, textiles and apparel sales fell by 59% and motor vehicle and parts sales fell by 61%. That’s just in one sector and for one lockdown. Having endured this twice would have now placed the private sector under a menacing financial distress,” he said.
“Now, the country is in urgent need of economic freedom, where the state earns added revenues from productive sources and not a taxation agenda that will restrict savings, productivity and investment, allowing them to close the fiscal deficit in the last six years of $63 billion and ease the debt burden, which now stands at approximately 85% of GDP.”
Arjoon said the private sector is in need of an enabling environment for growth in their customer base and profitability. He also stressed that the budget should encourage the private sector’s ability “to provide further productive jobs, become more competitive in the global market and have easier access to credit and forex from commercial banks, while still operating within the pandemic restrictions.”
However to allow for this, he said the budget must introduce clear strategies.
These strategies he said should “(1) Urgently fix the quality of our state institutions, so that it becomes easier and faster to complete simple yet important procedures and transactions with the state, and therefore, business operations are not delayed; (2) Place added focus on capital expenditure projects, especially those with the highest payoff relative to the expected cost; (3) Raise our overall quality of life through providing higher standards of health care, education, basic amenities like potable water and housing, while ensuring proper financial management so that there is no overspending and wastage; (4) Enhance the revenue performance of our state entities and limit wastages or irresponsible financial decisions; (5) Improve the social programs to assist the less fortunate while ensuring that there are appropriate checks and balances so those who are most deserving have access to them.”
Arjoon noted several government projects which commanded a chunk of capital expenditure including the La Brea dry-docking facility, the San Fernando Waterfront, Phoenix Park Industrial Estate and several highway constructions had not made the progress expected but he called for the state to push through and get them done.
He said: “Given our limited fiscal space, the state has to implement better financial management during implementation. These projects should not be delayed – prolonging them cause cost overruns and the cost of completion goes up.
“The state must also be cautious to avoid potential corruption in the procurement process. When monies are lost due to cost over-runs and corruption, it deprives other sectors in the economy that could have made more productive use of these funds, or other government projects which may have created additional jobs in the process and lowered poverty levels.”
He also noted, “The 2021 budget also indicated an intent to privatise the Port of Port-of-Spain (PPOS), which has also not transpired. This, however, is an important step to boosting the revenues from the maritime sector while providing a potentially lucrative investment avenue for elements of the local private sector provided that they are awarded the investment contract.”
He added, “The port is in dire need of significant funds to upgrade the infrastructure including cranes, trailers etc. For instance, at the end of 2020, only five of the 18 cranes had some economic life. With this poor infrastructure coupled with labour productivity issues, it takes much longer for containers to be offloaded —on average 12 per hour. This causes much delay and a backlog of shipping vessels that have to wait longer times to offload, which is costly to them, especially if they miss their schedule at the Panama Canal. They also require capital to properly dredge the port – failure to do this a few years ago lost us market share, as larger Panamax shipping vessels could not be accommodated at the PPOS and instead started to call at the Kingston Freeport Terminal in Jamaica.”
He said: “If the PPOS is privatised, they will have the capital to fix its infrastructure, dredge and re-attract some of the lost market share, especially given our convenient location above the South American subcontinent, and be better poised to take advantage of transshipment opportunities to Guyana.”
Arjoon, however, warned the government should be cautious concerning the introduction of new taxes given the financial hardships brought upon by the pandemic, and the likelihood that these issues will linger for a couple more years.
He said: “More focus ought to be placed on tax collection administration, and if the state is confident that the TTRA will be able to effectively plug tax leakages and collect billions of dollars in additional taxes owed, then there should be no need for new taxes to create further distress for the private sector. They should postpone the implementation of the property tax, until the private sector has a meaningful rebound.”
He said introduction of the property tax now may even encourage more attempts of tax evasion.
“If implemented in the short-term, it could create more uncertainty in the minds of both households and business owners about their future financial position. It may even encourage more tax evasion and avoidance especially if there isn’t proper value for money,” said Arjoon who noted that there had not been enough evidence that tax funds had been properly invested into infrastructure given concerns over road maintenance and flooding.
He also worried that the tax could increase rental costs and dissuade foreign investment. “It could also discourage foreign and local businesses that may be thinking to expand their operations or upgrade their infrastructure as this will increase the annual rental value and therefore increase the tax to be paid. Landlords may increase rents. Many privately owned malls have lost tenants. How will these mall owners afford to pay the tax? We need a tax environment that will not stifle future investment opportunities,” he said.
UWI lecturer in Banking and Finance Prakash Ramlakhan felt the government could use the remote work platform introduced during the lockdowns as a potential avenue to transformation.
“The pandemic has shown us we don’t all have to go into Port-of-Spain and the urban centres and go and work. You can work remotely.
“So therefore, we could use this as an opportunity for the decentralisation of the government. So we don’t have to rush everybody to Port-of-Spain and rent or lease high cost real estate. Cause tremendous traffic congestion, expensive road network, high stress level and the associated health costs. We don’t need that anymore,” he said.
“I would like to see the government do is actually embrace the challenge to transform the social and economic landscape of Trinidad and Tobago into one that is going to create greater happiness and sustainable growth. They have the resources to do so.”
Ramlakhan noted that several measures announced in the last budget had middling to little impact, especially those introduced to address the economic fallout caused by the pandemic.
‘The microfinance grant, they had set aside a few million dollars, I cannot remember the exact figure to assist micro entities with grants I don’t know how successful but several small businesses I have seen close up and I have read close up. There is very little research in this time because of the COVID people are not going out there, but I am not certain to what extent micro-financing was able to save a number of micro-entities,” he said.
Like Arjoon he recognised the lack of progress on highway projects and housing projects and the revamping of the National Insurance Board, although he did however acknowledge progress made on specific aspects of digitalisation. However many of these successes were similarly undercut by the pandemic’s impact.
“I think they have improved the system for VAT refund, however VAT refunds still takes a little time still long because of funding availability and not so much the system because they have proposed to make the VAT refund system more efficient, but they had made progress in that area, but funding continues to be a problem,” he said.
However, he felt the country still largely struggled with regard to the ease of doing business.
He said the government should shy away from repeating fiscal plans they had announce previously and instead adopt new strategies for sustainability.
Ramlakhan also called for further diversification in the economy and urged the government to empower industries apart from the energy sector.