A TALE OF TWO BUD­GETS

Com­par­ing and con­trast­ing Trinidad & Tobago’s eco­nomic roadmap with Saint Lu­cia’s plans for growth

The Star (St. Lucia) - Business Week - - FRONT PAGE - BY CATHER­INE MOR­RIS, STAR BUSI­NESS COR­RE­SPON­DENT

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

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.

FUND­ING FARM­ERS

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.

BOOST­ING CON­STRUC­TION

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.

EX­PLOR­ING EN­ERGY

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.

BE­COM­ING BUSI­NESS-FRIENDLY

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.

LOOK­ING AHEAD

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)

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