It is eas­i­er to spend than it is to raise tax­es, as the brouha­ha with prop­er­ty tax­es demon­strat­ed. Prime Min­is­ter Kam­la Per­sad-Bisses­sar has com­mit­ted to ho­n­our­ing cam­paign promis­es, there­by in­creas­ing ex­pen­di­ture.

The prop­er­ty tax will be scrapped and the Rev­enue Au­thor­i­ty dis­band­ed.

Law-abid­ing cit­i­zens who were “fool­ish” enough to pay the tax will not be re­fund­ed.

Promis­es that there will be no in­creas­es in wa­ter or elec­tric­i­ty rates have been re­it­er­at­ed, as were promis­es to pub­lic sec­tor work­ers.

These are pop­ulist mea­sures de­signed to buy good­will. That is the easy part.

The dif­fi­cult part is find­ing the fis­cal where­with­al to pay for these promis­es when tax rev­enues are de­pressed be­cause the econ­o­my is not grow­ing fast enough.

Last week, we not­ed that the Gov­ern­ment of the Re­pub­lic of Trinidad and To­ba­go (GORTT) ex­pen­di­ture ex­ceed­ed rev­enue for 22 of the past 25 years and that the deficit has been in­creas­ing.

The mid-year bud­get re­view will con­firm that the 2025 deficit is larg­er than bud­get­ed.

If there is no ad­di­tion­al rev­enue, then the GORTT will need to in­crease its bor­row­ings, adding to the na­tion­al debt. The 2026 Bud­get speech will clar­i­fy this sit­u­a­tion.

No gov­ern­ment can bor­row be­yond its ca­pac­i­ty to re­pay, and T&T’s in­ter­na­tion­al cred­it rat­ing now stands at the prover­bial edge, af­ter which there will be a risk pre­mi­um on any ad­di­tion­al bor­row­ing.

Debt ser­vice (in­ter­est and prin­ci­pal re­pay­ments) is paid from the Gov­ern­ment’s tax­a­tion rev­enues. When bor­row­ings in­crease, debt ser­vice pay­ments in­crease, ac­count­ing for a larg­er per­cent­age of rev­enue.

This could lead to funds be­ing re­al­lo­cat­ed from oth­er ex­pen­di­ture items. Any in­crease in in­ter­na­tion­al in­ter­est rates will add to the bur­den. How will ex­pen­di­tures be pri­ori­tised?

Many com­men­ta­tors have not­ed that trans­fers and sub­si­dies ($30 bil­lion in 2024) ac­count­ed for 55 per cent of GORTT’s ex­pen­di­ture.

More im­por­tant­ly, it ac­count­ed for ap­prox­i­mate­ly 60 per cent of GORTT’s rev­enue. In 2024, salaries ($10.5 bil­lion) and debt in­ter­est pay­ments ($6.5 bil­lion) ac­count­ed for an­oth­er 33 per cent of rev­enue.

Cut­ting Trans­fers and Sub­si­dies would be a quick fix. How­ev­er, that is eas­i­er said than done, as trans­fers im­pact many in­flu­en­tial and vo­cal vot­ing groups.

The largest trans­fer pay­ment was made to gov­ern­ment pen­sion­ers ($10 bil­lion), and $4.1 bil­lion went to the Se­nior Cit­i­zens Grant. Statu­to­ry cor­po­ra­tions got $6.6 bil­lion and state en­ter­pris­es $3.5 bil­lion.

As the pop­u­la­tion ages over the next five years, gov­ern­ment pen­sions and se­nior cit­i­zens’ grants will in­crease.

In­creas­ing gov­ern­ment salaries in­creas­es the pen­sion bill. The Gov­ern­ment pri­ori­tis­es these pay­ments.

The re­sult is that GORTT’s cash flow is con­strained be­cause of nat­u­ral­ly ris­ing ex­pen­di­tures. Con­se­quent­ly, GORTT is of­ten delin­quent in meet­ing oth­er “com­mit­ments”.

It owes WASA, T&TEC and pri­vate com­pa­nies bil­lions in late pay­ments and can­not pay VAT Re­funds.

It must find dif­fer­ent fi­nanc­ing de­vices to pe­ri­od­i­cal­ly re­duce these out­stand­ing debts.

Un­less GORTT makes fun­da­men­tal struc­tur­al changes, every fi­nance min­is­ter will jug­gle un­paid bills and un­fund­ed pri­or­i­ties.

Chang­ing the Gov­ern­ment can­not change this re­al­i­ty. Min­is­ter Dav­en­dranath Tan­coo may prove to be a nicer ver­sion of Mr Colm Im­bert, sub­ject to the same crit­i­cisms.

Pub­lic sec­tor cap­i­tal in­vest­ment pro­grammes al­so have a sig­nif­i­cant cash flow im­pact.

Run­ning con­tin­u­ous deficits has an un­in­tend­ed neg­a­tive byprod­uct.

Deficits are ex­pan­sion­ary as the Gov­ern­ment is spend­ing on pub­lic goods and ser­vices, and wel­fare ini­tia­tives in­crease de­mand with no corol­lary in­crease in ex­port earn­ings.

Since every dol­lar spent has a high im­port co­ef­fi­cient, con­tin­u­ous deficits in­crease the de­mand for for­eign ex­change, thus re­duc­ing for­eign ex­change re­serves.

Most of the food we eat, all the fu­el we use, the clothes we wear, the trucks and cars we buy, etc, are im­port­ed.

Giv­en that our ma­jor ex­ports have been de­pressed in vol­ume and price since 2014, con­tin­u­ous deficits have drained the coun­try’s in­ter­na­tion­al re­serves.

Like all our Cari­com part­ners, T&T is too small to pro­duce all that it needs, nor can it feed it­self. The coun­try can­not sur­vive with­out im­port­ed food, fu­els, med­i­cines, or cars and trucks which are vi­tal to com­merce.

There­fore, at­tempt­ing to blame mer­chants or to name and shame the largest im­porters or users of for­eign ex­change is coun­ter­pro­duc­tive and cre­ates a dan­ger­ous so­cial di­vide, a fool’s er­rand.

Busi­ness­es im­port to sell to the pub­lic. If there were no de­mand for im­ports, no one would be im­port­ing. When ex­ports de­cline, the terms of trade wors­en and weak­en the TT dol­lar’s ex­change rate. That is an au­to­mat­ic eco­nom­ic sta­bilis­er.

The cur­rent eco­nom­ic pol­i­cy sup­ports a fixed ex­change rate, mak­ing im­ports rel­a­tive­ly cheap­er to buy, there­by cre­at­ing a self-in­flict­ed pol­i­cy wound.

The price mech­a­nism reg­u­lates the dif­fer­ences be­tween de­mand and sup­ply.

When de­mand is greater than sup­ply, the price changes.

This fun­da­men­tal eco­nom­ic prin­ci­ple ap­plies to toma­toes as it does to the ex­change rate.

The longer this sit­u­a­tion per­sists, the deep­er the ad­just­ment re­quired, length­en­ing the ad­just­ment process.

This ex­plains the large and thriv­ing par­al­lel mar­ket for for­eign ex­change. Why sell USD to a bank if one can sell for a high­er price else­where?

Busi­ness­es al­so price their in­ven­to­ry at re­place­ment cost, not the of­fi­cial ex­change rate.

The cur­rent ex­change rate pol­i­cy is pure lu­na­cy, as it en­cour­ages hoard­ing and a thriv­ing black mar­ket, there­by fos­ter­ing scarci­ty.

Tack­ling the deficit and the ex­change rate mech­a­nism are im­me­di­ate pri­or­i­ties and are the keys to chang­ing the coun­try’s eco­nom­ic cir­cum­stances.

Mar­i­ano Browne is the Chief Ex­ec­u­tive Of­fi­cer of the UWI Arthur Lok Jack Glob­al School of Busi­ness.