A TALE OF TWO BUDGETS
Comparing and contrasting Trinidad & Tobago’s economic roadmap with Saint Lucia’s plans for growth
Earlier this month, Trindad and Tobago released its 2018 budget statement outlining an austerity package that would require all citizens to make “a serious adjustment”. Price hikes and tax increases will likely result in a higher cost of living for those in the twin-island nation and Minister of Finance Colm Imbert acknowledged the ”hard and difficult choices” his government had made in trying to reverse the downward slump.
Saint Lucia, which faces many of the same threats and has also experienced climbing fiscal deficit, rocketing unemployment and low productivity, has taken a different approach. Focusing on tax relief as a means of building confidence in the economy, the government lowered VAT from 15 per cent to 12.5 per cent early in 2017 and created a VAT deferral system for manufacturers. Prime Minister Allen Chastanet also pledged to “simplify” the Personal Income Tax, but declined to give details, promising only a more “progressive” system.
As Trindad and Tobago tightens its belt, Saint Lucia committed to spending over $1.5bn in 2017/18 - 6.1 per cent more than the 2016/17 estimates. Much of this money is being directed to capital expenditure, funding road improvement and rehabilitation works.
Saint Lucia’s budget is ambitious. Labelled a “reform and change agenda” by the prime minister, it is heavy on optimism and promises. In sharp contrast, Trinidad and Tobago is striking a gloomy note. Minister Imbert asks for “sacrifice” and for citizens and government to put their “shoulders to the wheel”. In this sector-by-sector analysis, we look at how exactly each nation aims to address its challenges and drive growth.
FOCUS ON TAXATION
In keeping with its aim of increasing government revenue, the Trindad and Tobago budget ushered in a raft of new and increased taxes. Long viewed as a haven for business, the country risked this reputation with an increase in the corporation tax rate from 25-30 per cent to a flat 30 per cent for companies and 35 per cent for commercial banks.
It also imposed a 10 per cent tax on all winnings from the National Lotteries Control Board, an increase in the various taxes and duties imposed on the gaming industry, a revamped property tax system to be implemented in 2018 and a crackdown on the tax system in general to stem leakages in the system.
This hardline approach is expected to deliver big returns. Trindad and Tobago is expected to collect over $30.8bn in taxes during the 2018 fiscal year.
Saint Lucia’s stance is less punitive, but also less clear-cut. Although the prime minister has promised to re-examine Personal Income Tax (PIT) on the basis that the scheme is unnecessarily complicated, he said only that there would be a cap on PIT and deductions would be reformed. Further details are expected before the end of 2017, ahead of implementation in 2018.
Saint Lucia’s manufacturers will also be getting a tax break in 2018. To ease costs for importers, the government will introduce a deferral system allowing them to defer VAT payments on goods as they enter the country. This is expected to improve efficiency within Customs and Excise Department as well as clearing the way for businesses to immediately use goods even if low on funds.
Incentivising manufacturers is a key priority for both Trindad and Tobago and Saint Lucia. The former nation plans to incentivise manufacturers by giving them a break on tax - introducing export allowances that would reduce tax for revenues generated from incremental exports to existing markets. Further details are expected to be released in the country’s upcoming Finance Act 2018.
Dealing with low productivity, a lack of competitiveness and challenges within the labour force, both countries acknowledge that diversification and increasing competitiveness are essential.
Although Saint Lucia’s budget was largely silent on how to improve competitiveness and productivity for manufacturers, it did, however, suggest that creating linkages with other industries such as tourism and agriculture could prove profitable.
Farmers were one of the few groups that caught a break in Trinidad and Tobago’s austere budget. To encourage local food production, the government will create an Agricultural Financial Support Programme that can issue farmers grants of up to TT$100,000. Applications will be reviewed by a panel and must come from trained farmers. The government also removed a provision that granted a “tax holiday” to farms less than 100 acres - hoping to encourage commercial farming on a larger scale.
Saint Lucia’s government is pouring EC$49.3m into its agricultural sector, $13.8m of which will fund the Banana Productivity Improvement Project designed to grow exports of the fruit to 60 to 70 thousand tonnes in its third year.
It also launched the Youth Agri-Enterprise Facilitation Programme. Under this scheme, around 150 young entrepreneurs will enter the market through an incubator programme.
Trinidad and Tobago also recognises the importance of bringing new blood into the sector and has its own incubator initiative the Community Environmental Protection and Enhancement Programme. This aims at increasing labour force participation in all areas of agriculture.
Construction is one of Saint Lucia’s most dynamic sectors, accounting for around 60 per cent of GDP growth in 2016. The sector is expected to continue this trend and show strong gains in the coming fiscal year with several, large FDI projects coming onboard. These include the Fairmost Saint Lucia Resort, the Honeymoon Bay Resort and The Curio by Hilton.
The government will also do its part in stimulating the sector by embarking on a large-scale EC$479m road improvement project and capital works programme.
Ambitious plans were laid out for Castries, including construction of a new cargo port, a sewage treatment plant and new commercial, retail and residential development. In his statement, Prime Minister Chastanet did not clarify how much the Castries redevelopment would cost, or how it would be funded.
Demand for good, affordable housing in Trinidad and Tobago is far outstripping supply. To increase construction activity in this area the government launched the Housing Construction Incentive Programme (HCIP) which it hopes will tempt private developers into the market. Income from the sale of houses under the HCIP will be tax-free. In addition, the government will contribute cash (up to TT$100,000) or land to all approved developers who meet government standards. Beginning in January 2018, the HCIP is expected to cost government $50m and provide around 1,000 new homes.
Given how the performance of the energy sector strongly influences all sections of the economy, it’s unsurprising that this was a major area for both budgets.
Despite declining revenues from oil and gas, traditional stalwarts of the Trinidad and Tobago economy, that country’s government remained optimistic. Citing new gas projects in the pipeline, Minister Imbert forecast that the country’s production could well climb back to 2010 levels. Amid concerns that energy companies are not contributing their fair share in taxes, the government imposed a 12.5 per cent royalty rate on the extraction of all gas, condensate and oil.
In Saint Lucia the focus was on building capacity in renewable energy. The Sustainable Energy Sector Development Strategy seeks to increase the demand for sustainable energy services. Government-led initiatives include installing photo-voltaic and solar hot water systems on public buildings, advance solar farm development and increase manufacturing in the alternative energy niche. It also seeks to reduce dependence on fossil fuels and encourage energy innovation, However, few details were given on how these aims would be achieved.
With small businesses suffering throughout the region, both Trinidad and Tobago and Saint Lucia are trying to create a better business climate.
In Saint Lucia that takes the form of “a comprehensive re-engineering of the public service”. The Public Service Management Bill is due to be tabled in parliament before the end of the fiscal year and a resultsoriented framework is being developed for the government’s internal budget. In addition the government wants to see greater uptake of technology, with online services coming onstream. These measures are expected to improve Saint Lucia’s Ease of Doing Business ranking, another aspect of which is improving access to credit. In the coming year, the government has committed to establishing a Credit Bureau, a Registry of Movable Assets and a Secured Transactions System. These are intended to reduce risk and therefore help small businesses access a greater range of financial products.
Trinidad and Tobago takes a similar approach - focusing on small business as the engines of the economy. It has created a new $50m business development fund to provide working capital and seed capital through grant funding. However, apart from a commitment to special audits of government departments, the budget is largely silent on the issue of public inefficiencies and ease of doing business.
There is still much to be determined in Saint Lucia’s and Trinidad and Tobago’s budgetary plans and, although both attempt to navigate the road ahead, neither can fully anticipate all obstacles.
In Saint Lucia questions remain over what form Personal Income Tax reform will take and whether it will be sufficient to ease the burden on the public sector which has struggled to implement the complicated process.
In addition, many reforms are yet to materialise. Promised measures such as the Credit Bureau and the Secured Transactions System are still being established and it could be a long time before businesses feel the benefits.
Similarily, many in Trinidad and Tobago are waiting for the upcoming Finance Act, due to come into force next year, to shed more light on the government’s plans for improving the business climate.
Economies are always a work in progress and governments need to be responsive, flexible and prepared. Only time will tell if the economic agendas of both Saint Lucia and Trinidad and Tobago can make good on their promises, follow through with their goals and deliver on the results.
T&T Minister of Finance Mr. Colm Imbert (left) and Saint Lucia’s Prime Minister and Minister of Finance Mr. Allen Chastanet (right)
“The road to our destination will be bumpy and implementing change is sometimes messy.” – Prime Minister Allen Chastanet (Budget Statement 2017-2018)
“This new paradigm will call for serious adjustment from all sectors of society.” – T&T Minister of Finance Colm Imbert (Budget Statement 2018)