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Now that the date for the 2016-17 national budget presentation has been announced, it is time for some reflection on the likely challenges facing the Government and the country in the fiscal package that will be unveiled on September 30.
One of the first things that the Minister of Finance must address should be the question of the Government’s cash flow and its revenue-generating prospects. There has been considerable commentary over the last year about shortfalls in revenue and the need to take measures for the country to stay afloat. That kind of narrative has had a depressing impact on the national psyche.
Some argue that this is simply being honest in facing the situation, while others argue that this is having a negative impact on commercial activity. At the end of the day, the minister has to carry out a balancing act of being honest with the population, while at the same time seeking to inspire confidence in the economy so that future investment activity can take place.
There are some policy measures that have gone silent since the last budget and the mid-year review. One of them is the issue of the property tax. Nothing much has been heard about the creation of a Revenue Authority and the imposition of a property tax since last year when the nation was told that they would be required to pay land and building taxes at the existing rates in the interim. An entire year has gone by with no further utterances from the minister.
The imposition of taxation is never a nice prospect and so the population would have breathed a sigh of relief not to have the imposition of any new tax on them. As a result, further inaction by the Government may be a welcome development, but it also speaks to an internal problem about which the Ministry of Finance is not telling the population. The position of the Opposition is very clear on this issue and that is to “Axe the Tax.”
In an election year, the imposition of a property tax is not likely to be the most popular measure that the Government could seek to implement. However, there is a trail of commentary by the Minister of Finance that confirmed that, at minimum, the old tax rates were going to be imposed. The minister will need to be very transparent about this matter.
The issue of foreign exchange continues to be a sore point for members of the public as well as businesses with the banking system. The minister now has full control over the Governor of the Central Bank since the dismissal of Jwala Rambarran last December. With a compliant Central Bank Governor in the chair, the Government has been able to direct and control, and a policy of gradual devaluation has been adopted. This has seen the T&T dollar depreciate in value from about $6.45 to one US dollar when the Government arrived in office one year ago to about $6.75 to one US dollar today.
There are some economists as well as international lending agencies that would prefer to see the dollar continue its slide to about ten dollars to one US dollar. That will have a devastating impact on our economy, despite the argument that it ought to stimulate the manufacturing sector by making our goods cheaper for export.
This is an old debate. There have been devaluations over the years that were implemented before and after the imposition of structural adjustment packages from the IMF in the 1988-90 period. In 1985, prime minister George Chambers implemented a devaluation from $2.40 to $3.60 to one US dollar. During the term of the NAR administration, there was a further devaluation to $4.25 to one US dollar.
When the Patrick Manning administration “floated” the T&T dollar in 1993, it was floated at a rate of $5.75 to one US dollar. The country has managed very well over the last 23 years to only have the TT dollar float away by about one TT dollar. The policy prescription from some economists and the IMF may see our dollar float away from $6.75 to ten dollars. Can our economy handle the shock of such a move?
In other countries where there have been sharp negative adjustments in the rate of exchange there has been social unrest. Can we afford to take that chance? The issue of foreign exchange will be keenly eyed when Colm Imbert speaks on September 30.