In a genuinely democratic, developed society, clear, unambiguous rules–both on corruption and wastage of public resources–are the first two critical requirements to be addressed prior to proposing specific tax measures such as property taxation for reasons detailed in my column last week. I also indicated that three additional criteria were required.
Justified expenditure
The first is for Governments to justify public expenditure priorities. Economics 101 teaches that resources are scarce and therefore choices have to be made: particularly for capital expenditure running into hundreds of millions of dollars. Economists have developed techniques to subject every project to a cost benefit analysis (CBA). CBA is based on the common sense that no expenditure should be incurred unless matched by benefits which are equal to, or, ideally, greater than such costs. CBA seeks to answer the basic question: are we getting a compensating 'bang for the buck' spent?
Cost benefit analysis begins with identification of ultimate objectives and alternative approaches to achieving same: the logic is that there is more than one way to skin a cat. Each alternative would then be subject to cost benefit scrutiny and the least cost/highest benefit option would be selected. There is no such public accountability at present. A recent advertisement of the National Infrastructure Development Co Limited (Nidco) invites firms to bid, for example, to design and build 471 kilometres of "new and improved highways." Why? The advertisement goes on: "The T&T Government leads a vibrant nation founded on an economy of industries, oil and gas production and regional financial centre services...rapid economic growth and prosperity...have stressed the existing network capacity."
Remarkably, the advert provides no answer to the most basic cost benefit question: what is the ultimate objective and what are the alternatives other than highways and the relative costs and benefits of each option? Moreover, the oil and gas booms are over and with it 'rapid economic growth' and, I dare say, sustained prosperity. Ironically, Finance Minister Tesheira justified the cut in this year's Judiciary's budget allocation (which axed the Family Court) on the grounds that capital expenditure was prioritised on the basis of whether legal commitments already had been made. Yet, we now see de nouveau adverts for highways and desalination plants: clearly other non-stated criteria are at play.
Chinese elephants?
The Nidco reference to financial services reminds that its companion company–Udecott–committed taxpayers to an estimated $1.3 billion construction cost for two 26-storey, 900,000 square foot, unfurnished buildings dubbed an "international financial centre," but without one "white" firm as occupant. (Should we dub them "Chinese elephants?") Where was the cost benefit analysis for both stories and its neighbour: the taxpayer-financed hotel managed by the Hyatt chain? When will the latter turn a profit even with artificial business generated by the Government, mandating that virtually all public sector functions be held at the most expensive place in town? (Afra Raymond's column in the Business Guardian details the burden of the waterfront project–afra raymond.com)
Bearing tax burden
After we have been satisfied that effective anti-corruption and anti-waste measures are in place and justified priorities have been set, the fourth issue becomes: Who should bear the burden of unavoidable State expenditure? The core response is that all should contribute to the overall tax requirement relative to our economic circumstances. Property tax cannot be isolated, therefore, from the overall tax burden borne by individuals and firms. Moreover, as noted in an earlier column, the tax net begins with common property: the oil, gas, forests and marine resources commonly owned by all, including the unemployed and the poor.
The State also can raise revenue by ridding itself of redundant assets and/or those which it is dangerous for a sitting government to control (eg shares in the mass media). As a result of the Clico bailout, for example, the government now controls assets in finance and the mass media which are still commanding normal market demand and which can be sold to recoup our exposure. (There notably was no accounting in this year's budget for the billions–we do not even know how much–of taxpayers money that have gone into this rescue. Yet, some weeks ago, CL Financial reportedly gave a briefing to Cabinet. Such a report should have gone to Parliament–and certainly should have been included in this year's budget–since Cabinet members did not dip into their personal pockets to rescue Clico–they dipped into ours).
Effective representation
Finally, representatives of the people need to ensure that these first four requirements of a tax system are being adhered to: limit corruption and waste, justification of priorities, and fairness in the distribution of the tax burden. To achieve this, however, requires a change in the system of national governance inclusive of the budgetary process.