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Following on from Budget 2018, the government has launched an intensive campaign to promote the variety of fiscal incentives on offer. Almost every day since the Finance Minister stood before Parliament and delivered the 2018 fiscal package, full-page coloured advertisements highlighting various government-backed incentives have been a feature in the print media.
From agriculture to housing, to the hotel and tourism industry, all have been provided with some “inducement” to stimulate economic activity in their sector. In reality, though, incentives aren’t always as easy to attain as they appear to be. However, given the situation of the T&T economy, and a number of other precipitating factors, the absence of incentives would perhaps make the prevailing circumstances much worse.
There’s a wonderful term that the youth of today use to describe the act of someone presenting to them an offer that sounds too good to be true. They call it “selling dreams”.
Observing Budget 2018, one can’t help but get the feeling that, on one level, they are being sold a dream where government-backed incentives are concerned. The thinking behind this is disarmingly simple.
As nice as fiscal incentives sound, anyone who has ever had to do business with the State knows how tedious the process can be. That said, beyond what was presented in the budget, there are a number of fiscal incentives offered by the government.
In fact, on the Ministry of Finance website, there’s an entire catalogue called “Major Incentives in T&T” that outlines hundreds of incentives spread across all of the major industries that matter to T&T’s economic reality.
The incentives range from the serious (a 100 per cent exploration allowance for firms in the upstream energy sector) to the mundane (demand loans offered by the Exim Bank for manufacturers) to the questionable (a promotional expenses allowance of 150 per cent for “advertising in foreign markets”—yes, there’s really one for that).
The Finance Minister himself is on record bemoaning the lack of “take up” by the private sector of incentives on offer by the government.
The real challenge the State has to overcome here is one of making access to incentives easier. The minister will constantly be faced with this “take-up” conundrum, and the appearance as a “dream seller” if the perceived—or real—experience of those whom the incentives target is that it’s just too difficult to get anything done with the government.
Ronald Hinds, president of the T&T Chamber, said it best when he said that along with the incentives, there were a number of “hidden disincentives” that interrupt the smooth flow of public-private engagement.
A step in the right direction?
To be clear, in a small country such as T&T, the significant role of the State as an economic agent will always exist. However, given the decline in revenues that accrue to the government, incentivising more private sector activity is, in fact, a credible way to go about shifting the burden of risks and rewards. Additionally—and perhaps because of how difficult it is to do business in T&T—the incentives make engaging in enterprise in this country, more tolerable.
Put differently, the absence of fiscal incentives could very well mean the absence of many businesses as we know it today. Logically, this makes sense. Why would a manufacturer, for example, continue to do business in a country where real issues of labour productivity and crime exist in the absence of some incentivising factor that offsets these challenges?
Truthfully, it may very well be easier for him, and in his best economic interest, to pack and take his business elsewhere.
Further, if the State can get the “doing business” climate right, the need for incentives could be reduced, and then perhaps be eventually done away with altogether.
In essence, fixing the issues peripheral to business would allow the government the opportunity to focus on a few core areas (national security, infrastructural development, environmental management) that once remedied are, in themselves, incentivising.
I’m fairly certain many in the business community would have no problem parting with additional tax dollars (as they are being required to do now) if they felt those same dollars would be put to more productive use and would translate into a better space for commerce in T&T.
An issue of clarity
One final thought about incentives: where’s the data to support their efficacy?
Has the government conducted any studies or done any analysis that suggests where resources are targeted/allocated through fiscal incentives will, in the long run, provide the best value for money?
No doubt many in the business community through the various chambers and other lobby groups would have proffered suggestions to the State as to what would be best for their industry.
However, in light of the austere environment that currently exists, it would perhaps be best to understand the rationale behind some of the incentives on offer.
At this juncture in our economic history, resources should be concentrated in areas where they can generate maximum returns—now and in the long run.